JAPAN: DPFP Chief-LDP's Takaichi Proposed Coalition, More Talks 20 Oct
Japanese politics remains in a state of uncertainty, with opposition parties holding the balance of power on whether to back the governing Liberal Democratic Party (LDP)'s new president, Sanae Takaichi, to succeed Shigeru Ishiba, or to pursue a three-party alliance to nominate an opposition figure. Takaichi has held in-person meetings with all three main party leaders today, with the opposition leaders also holding their own talks.
- Conservative populist Democratic Party for the People (DPFP) leader Yuichiro Tamaki says that there is "still some distance" between his party and the main opposition liberal Constitutional Democratic Party (CDP). Says he suggested another party leaders' meeting on Monday, 20 Oct, a day before the scheduled election of a new PM.
- Tamaki says that "on basic policies, there is a lot of overlap between us and the LDP". Says Takaichi is looking for an LDP-DPFP coalition, but that the LDP must "first build a relationship of trust..."
- CDP leader Yoshihiko Noda said, "If the opposition works together, we have a chance to take power", adding, "the chances of a three-party agreement are not zero".
- Libertarian-federalist Japan Innovation Party (Ishin) co-leader Fumitake Fujita was circusmspect, saying that he did not make any major proposals in today's meetings, and that there was "no specific discussion on naming a PM candidate".
- Political betting markets have shifted back in Takaichi's favour. Data from Polymarket shows bettors assigning a 91% implied probability she becomes PM, up from a low of 63.8% on 10 Oct. Tamaki's apparent coolness towards an opposition alliance and talking up similarities with the LDP looks to have seen Takaichi's prospects recover.
Chart 1. Political Betting Market, Implied Probability of Next Japanese PM, %
Source: Polymarket
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FOREX: FX OPTION EXPIRY
Of Note:
EURUSD ~1.5bn at 1.1690/1.1700.
EURUSD 1.48bn at 1.1750 and 1.54bn at 1.1800 (tue).
EURUSD 2.07bn at 1.1700 (thu).
AUDUSD 1.2bn at 0.6600/0.6615 (thu).
- EURUSD: 1.1650 (794mln), 1.1690 (967mln), 1.1700 (538mln), 1.1735 (266mln), 1.1750 (553mln), 1.1800 (731mln).
- GBPUSD: 1.3500 (776mln).
- USDJPY: 147.50 (265mln), 147.70 (541mln).
- USDCAD: 1.3850 (323mln).
ECB: ECB Speak Wrap (Sep 12 – Sep 15)
For a summary of ECBspeak since the September decision, see here.
Last week’s ECB decision saw the bar to another cut pushed a little higher, with the outlook now considered to be “more balanced” and the Governing Council not willing to react to “small deviations” from the updated inflation projections. Focus in the days since the September decision has been on ECBspeak. Broadly speaking, there are three Governing Council camps that appear to be emerging:
- Those who believe downside inflation risks still dominate, and providing explicit suggestions that another cut is possible
- Those providing no commitment either way at this stage.
- Those with little appetite to deliver another cut.
FOREX: Westpac Warn Of Sustained USD Decline
As noted elsewhere, this morning’s bid in European benchmark equity indices seems to be applying pressure to the broader USD.
- Westpac have warned that the USD is at risk of a sustained decline, with particular focus on inflation risks limiting the Fed’s cutting cycle and prolonging a weaker economic growth profile in the U.S. (along with ongoing fiscal uncertainty).
- As a result, Westpac expect “the DXY to slowly retreat to roughly halfway between its 10-year and 20-year averages, respectively 98.5 and 90.3, with a low of around 93.5 forecast for the second half of 2027”… “Underlying this trend decline are steady gains for EUR/USD, from 1.17 today to 1.20 end-2026 and 1.21 end-2027, and for GBP/USD, from 1.36 currently to 1.38 end-2027”.
