07:28 AM EDT, 09/29/2025 (MT Newswires) -- The yen (JPY) strengthened during the Asian trading session on Monday after failing to break back above the 150.00 level against the US dollar (USD) at the end of last week, said MUFG.

The main event risk from Japan in the week ahead will be the LDP leadership election that is scheduled to take place on Saturday, wrote the bank in a note to clients. With less than a week to go before the election, the latest opinion polls have revealed that support amongst LDP supporters is split between Shinjiro Koizumi and Sanae Takaichi, although none of the five candidates appears likely to win an outright majority that would then require a run-off election between the two leading candidates.

The latest opinion poll from Kyodo News revealed that Takaichi has taken a 34% to 31% lead over Koizumi amongst eligible, fee-paying LDP party members. In contrast, the latest opinion poll from the Yomiuri newspaper revealed that Koizumi has a clearer lead over Takaichi by 41% to 28%. The mixed results suggest that support amongst LDP supporters for Takaichi may be increasing ahead of the election, although Koizumi has consistently led in most opinion polls.

At the same time, the Kyodo News poll revealed that Koizumi has so far secured the most support amongst LDP Diet members. The poll revealed that Koizumi has the backing of over 80 LDP Diet members, which is more than double the support for Takaichi of around 40 Diet members. Chief Cabinet Secretary Yoshimasa Hayashi has the second strongest support amongst LDP Diet members, having secured the backing of about 60.

However, there still appear a lot of votes up for grabs. Overall, the opinion poll results still support MUFG's view that Koizumi remains the favorite to be elected the next leader of the LDP and likely prime minister of Japan.

If there is a second round vote, the votes of LDP Diet members will become relatively more important as they will account for 295 ballots compared with 47 ballots for regional branches of the party.

Still, downside risks for the yen from Takaichi winning the leadership election can't be ruled out at the current juncture, but she would have to secure more support from Diet members when votes are transferred to the remaining candidates in the second round run-off, added the bank.

MUFG's forecast for the Bank of Japan to resume rate hikes as soon as the October policy meeting is based on the view that Koizumi wins the leadership election. The reduction in political uncertainty should give the BoJ more confidence to resume rate hikes.

The BoJ will also be watching closely to see how Japan's economy is holding up to higher tariffs. The release this week of the latest Tankan survey for Q3 will attract even more market attention than normal to assess if conditions are falling into place for the BoJ to tighten policy, according to the bank.

Market expectations for a BoJ rate hike as soon as next month have been encouraged by comments overnight Sunday from BoJ board member Asahi Noguchi, who stated that steady progress is being made toward the BoJ's inflation target and "this suggests that the need to adjust the policy interest rate is increasing more than ever."