06:44 AM EDT, 10/21/2024 (MT Newswires) -- The yen (JPY) has underperformed since the ruling LDP leadership election on Sept. 27, said MUFG.

USD/JPY has since risen back up to the 150.00 level after trading closer to the 145.00 level prior to the LDP leadership election, wrote the bank in a note to clients.

Initial comments from new LDP leader and Prime Minister Shigeru Ishiba calling for the Bank of Japan not to raise rates in the current environment have helped to weaken the yen over the past month alongside the BoJ's own guidance indicating that it has more time to consider whether to raise rates further heading into year end.

The LDP's decision to choose Ishiba as its new leader and his decision to immediately call a snap parliamentary election for next Sunday has been brought into question by opinion polls released over the week which have captured market attention, stated MUFG. A Kyodo News poll revealed that 22.6% of respondents backed Ishiba's ruling LDP party in the election with their lead narrowing over the Constitutional Democratic Party narrowing to 8.5ppts from 14ppts in the survey taken a week earlier.

More worryingly for the LDP, another poll by the Asahi newspaper showed that they are likely to lose their majority in the Lower House of parliament and may not even secure a majority with its long-running coalition partner Komeito. A big blow that could even threaten Ishiba's position as premier, pointed out the bank.

Both polls did show though that around 40% of respondents are still undecided. MUFG's base case view is still for the current government to retain its majority although smaller than at present.

More political uncertainty in Japan could weigh further on the yen although the bank expects the bigger impact to be from the upcoming United States presidential election. An election victory for Donald Trump would encourage higher US yields and a stronger US dollar (USD) helping to lift USD/JPY back into the mid-to-high 150.00s before the end of this year, according to the bank.