Originally Posted by John Kicklighter

I just came across the article on his resignation on FT.com just a few minutes ago. Crazy.

I think you are right. His resignation will have to be interpreted by the currency market. On the one hand, you have considerations like carry trade and event risk stealing the yen spot light. However, this morning we really don't have any major economic releases scheduled that would inherently upset the risk balance (though the RBNZ's decision due late in the US session would definitely count as a market-moving indicator in current market conditions).

Even discounting exogenous risk flows though, I don't think this announcement would immediately lead to a yen drop. While under normal circumstances the uncertainty could generate a backflow from the yen, this doesn't seem like it would disrupt too many of the FX factors. The Abe government hasn't done much to help the yen through economic and foreign policy. What's more, this won't likely have much of an impact on interest rate policy from the BoJ since they are already hampered by growth fears and credit problems. On the other hand, should the Nikkei plunge 3 percent on the news, that could inadvertently guide the yen higher.

Does anyone know who his likely successor will be? I'm hoping it will be someone a little more attuned to the domestic economy (and hopefully one who has a strong background in economics with an opinion on low interest rates and memory of the similarities between the hyper investment period of decades past).

Originally Posted by economist

HI John,
your analysis makes sense. As far as a successor is concerned I think Sadakazo Tanigaki may be front-runner - he used to be the Fin. Minister.

Originally Posted by DailyFX Analyst

Tanigaki is a major yen dove FYI. On a separate matter here is an interesting analysis I just read from FT


http://www.ft.com/cms/s/0/a0664b06-6...0779fd2ac.html
Those who say Japan is "decoupling" from the US would reply that, since 2002, exports to Asia have soared 52 per cent, while exports to the US are flat. But this view overlooks the triangular trade. Much of Japan's exports to Asia and China consist of parts, supplies and equipment used for Asia's own exports to the US. Japan is able to export so much to Asia only because Asia exports so much to the US. If Japan's exports to Asia and China, which buy 40 per cent of Japan's exports, were mainly for the domestic market, they would correlate with the ups and downs of these nations' GDP. Instead, they correlate much better with Asian/Chinese exports to the US. If a US downturn caused the US to cut imports from Asia, Japan's own export drive would stop in its tracks.

Far from becoming "decoupled", Japan's economy has become even more dependent on US growth during this decade. America's high-technology downturn in 2000 sent Japan and its Asian markets into a tailspin and then the US recovery served as the locomotive for recovery. In 2000-2007, the correlation between GDP growth in the US and Japan was 74 per cent. No other comparable period going back to at least 1980 even comes close.