Yen strengthens after Japan’s Prime Minister Kishida announces decision to step down
Japanese Prime Minister Fumio Kishida will not run for a second term as leader of the long-ruling Liberal Democratic Party (LDP) in September, opening the way for a race to succeed him as premier.
“I will devote myself to supporting the new leader selected through the presidential election as a foot soldier,” Kishida said at a nationally broadcast news conference on Aug 14.
Given the LDP’s dominance in parliament, the winner of its leadership race, expected for late September, is virtually assured of becoming the next prime minister.
Kishida’s successor will be Japan’s third prime minister since Shinzo Abe, the country’s longest-serving leader, stepped down in September 2020.
The yen strengthened on the news, rising about 0.3% against the US dollar at 12.08pm in Tokyo, while Japanese share indexes were mixed, with the Nikkei down 0.2% and the Topix gaining 0.5%.
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Japanese government bond futures were little changed.
Support for Kishida has been languishing under 30% — seen as the danger zone for Japanese premiers — for months amid voter dissatisfaction with his handling of a scandal over party factions that were found to have concealed income generated at fundraising events.
Inflation and a yen slump added to his woes.
See also: ECB’s Schnabel sees only limited room for further rate cuts
Kishida’s government and the central bank have sought to show a united front and restore calm to financial markets, after the biggest stocks plunge in more than three decades this month triggered criticism of monetary policy tightening and cast a shadow over efforts to get households to invest their assets.
Kishida’s predecessor, Yoshihide Suga, criticised Kishida in a June 23 media interview and said it would be key for the LDP to bring a “sense of change” at the next leadership election.
“The first and most obvious step to show that the LDP will change is for me to step aside,” Kishida said on Aug 14.
While no general election needs to be held until 2025, some surveys have shown the main opposition Constitutional Democratic Party (CDP) gaining on Kishida’s LDP in terms of current voting intentions.
The CDP will hold its own leadership race in September.
The next premier may still call an election to firm up the new government’s mandate.
But the LDP and its junior coalition partner Komeito are expected to easily keep control given their powerful position in national politics.
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It is unclear who will replace Kishida as premier, although former Defense Minister Shigeru Ishiba was the most popular choice in local media surveys.
Other names that often come up in polls include Digital Transformation Minister Kono Taro, Foreign Minister Yoko Kamikawa and Shinjiro Koizumi, the son of a former premier.
“The market implication is that Japanese politics is going to be foggy,” said Shoki Omori, chief desk strategist at Mizuho Securities.
“Market participants are going to dis- like the uncertain situation, especially those investing in risk assets, such as equities.” — Bloomberg
Thai court ousts Prime Minister Srettha after finding him guilty in ethics case
Thailand’s Constitutional Court dismissed Prime Minister Srettha Thavisin from office after finding him guilty of an ethics violation, throwing the Southeast Asian nation into a fresh bout of political turmoil.
Srettha breached the provisions on integrity and ethical standards as mandated by the constitution by picking a tainted lawyer to be a cabinet minister in April, the nine-member court said during a read-out of the verdict on Aug 14.
The judges voted 5 to 4 to dismiss Srettha and his cabinet.
The court’s decisions are final and cannot be appealed.
Srettha’s Pheu Thai Party moved swiftly to pick Chaikasem Nitisiri, 75, as its new prime ministerial candidate, Thai-language newspaper Thairath reported.
The 500-member elected House of Representatives is scheduled to hold a special session on Aug 16 to choose a new leader.
The former property tycoon’s ouster risks political chaos in Thailand, where pro-royalist and conservative parties have jostled with pro-democracy groups for supremacy after a messy general election last year.
Foreign investors have pulled money from the country, concerned by both political risk and the government’s failure to revive Southeast Asia’s second-largest economy after a decade of below 2% average annual growth.
Srettha, who was seen as a proxy for the influential Shinawatra clan that controls Pheu Thai, became prime minister after an agreement with the pro-establishment allies.
The deal helped former leader Thaksin Shinawatra return to Thailand after 15 years in self-imposed exile.
But Thaksin’s indictment in a royal defamation case in June, and now Srettha’s removal, signal the possible unravelling of that deal.
The verdict against Srettha came days after the same court dissolved the country’s top opposition party Move Forward, which won the most number of seats in the 2023 election but was blocked from power. — Bloomberg
Declining interest rates will take a huge part of UOB’s growth engines, but volumes will pick up: CFO Lee
The upcoming declining interest rate environment will affect a huge part of United Overseas Bank U11 ’s (UOB) growth engine, so the bank will have to focus on fee income for the foreseeable future, says Lee Wai Fai, CFO of UOB at its corporate day on Aug 14 in Kuala Lumpur.
Speaking to analysts, investors and media, Lee presented the bank’s financial ambitions for 2026, which it expects 10 rate cuts will happen by then.
UOB is targeting a medium-term return of equity (ROE) at 14%, a figure that Lee says is “probably quite respectable” given the declining interest rate environment.
Three levels of focus will help the bank attain this goal — income from its Asean-4, which includes Indonesia, Malaysia, Thailand and Vietnam, to reach 30% while maintaining 50% in Singapore; a higher mix of non-interest income driven by wealth, trade, and customer treasury; and closing in on a 40% cost-income ratio.
“With the recent market volatility, this talk about higher-for-longer has now transformed into shorter-and-deeper,” says Lee.
“And our view is that a lot of market volatility...is not related to the economy.”
Looking at the statistics of the US economy, Lee says that the bank does not think that it will go into a recession.
“But we are watching that,” he adds.
On the gradual declining interest rates, Lee says that this could be beneficial for commercial banks.
“Margins might be affected slightly, but volumes will pick up,” he says.
The reduction of interest rates in the US will also reduce pressure on exchange rates in the Southeast Asian region, Lee continues.
Regional economies that have not had really high rates now have the opportunity to further bring it down.
Still, this will take a huge part of the bank’s growth engine. While current account savings account (Casa) and trade will have to be the driving force to keep ROE where it is at, Lee says the bank will have to transform its operating model from loans and interest functions to fees and treasuries.
The total trade between economic blocs rose about 27% from 2023, and most of the pickup in Asean-related trade flows happened in the intra-Asean and China-Asean corridors, at 34% each respectively.
When questioned by an analyst about how the group aims to capture trade flows, UOB’s head of group corporate banking, Leong Yung Chee, says that the bank’s approach is to be agile and competitive in its solutions and pricing.
“It’s not a case where we’re aiming to win by lowering pricing to win market share, it’s a zero-sum game and a vicious cycle. We don’t want to compete on pricing but [on] the virtue of our solutions,” he says. — Nicole Lim
