07:20 AM EDT, 09/04/2025 (MT Newswires) -- The major foreign exchange rates have remained relatively stable overnight Wednesday after the pick-up in volatility in recent days triggered in part by the sell-off at the long-end of global bond markets, said MUFG.

Global bonds recovered some lost ground on Wednesday, providing some temporary relief and helping to stabilize the foreign exchange market, wrote the bank in a note to clients. The 30-year Japanese government bond (JGB) yield dropped back towards 3.25% overnight after hitting a year-to-date high on Wednesday of 3.31%.

The rebound for long-term JGBs was supported by favorable results from the latest 30-year JGB auction held overnight, stated MUFG. The bid-to-cover ratio (3.31) came in broadly in line with the average over the past year of 3.38.

The yen (JPY) and JGBs have come under renewed selling pressure in recent days which helped to temporarily lift USD/JPY up to a high on Wednesday of 149.14 in response to fresh political uncertainty in Japan.

There has been heightened speculation over the future of Prime Minister Shigeru Ishiba. According to Bloomberg, the LDP is expected to vote on Monday on whether to bring forward a leadership election that is currently scheduled to take place in 2027. The party will be compelled to hold an early election if over half of the 342 party lawmakers and regional representatives seek one on Monday.

However, the LDP has stated that the vote won't be anonymous, which could work in Prime Minister Ishiba's favor, added the bank. Recent surveys from Yomiuri newspaper and broadcaster NHK have revealed that about 100 people are in favor of an early election compared with 50 who are against it, while the remaining half of eligible electors are undecided.

If an early leadership election is called, the yen could weaken further at least initially as market participants are wary that Sanae Takaichi, who came second in the last leadership contest, remains one of the favorites to be the next prime minister, pointed out MUFG. Takaichi is a strong supporter of the Abenomics policies of loose fiscal and monetary policies.

However, those policies are unlikely to prove as popular with the public. Higher inflation was one of the reasons why the LDP performed poorly in the Upper House election. As a result, the LDP should be less inclined to pick Sanae Takaichi to be their leader, accoridng to the bank.