Political Turmoil in Japan Fuels Yen Volatility

The Japanese yen reversed sharply lower on Friday, with markets seemingly pricing in political instability before the weekend’s shock announcement. Prime Minister Shigeru Ishiba resigned following mounting pressure within his party to take responsibility for a historic election defeat earlier this year. His resignation opens the door to a leadership contest just as Japan faces slowing growth and fragile investor confidence.

Market Implications

The yen’s outlook remains uncertain. Persistent volatility in Japanese government bonds (JGBs) continues to weigh on sentiment. If bond yields remain unstable, major yen pairs such as USD/JPY, EUR/JPY, and GBP/JPY could remain tilted to the upside. Traders are watching whether Ishiba’s resignation accelerates expectations for new fiscal stimulus or puts additional pressure on the Bank of Japan to maintain stability.

Domestic Calendar to Watch

This week’s data releases will add another layer of complexity. Markets are bracing for:

• Final Q2 GDP figures

• August producer price inflation

• Machine tool orders

• Reuters Tankan survey results

• Key manufacturing sentiment indicators

Together, these reports will provide insight into whether Japan’s economy can weather the political shock or if further turbulence awaits.