Following the disastrous results of the Upper House election in July and the accompanying loss of the majority, it was only a matter of time before the pressure on Japanese Prime Minister Shigeru Ishiba became too great and he resigned. Yesterday, that time came, Commerzbank's FX analyst Michael Pfister notes.

Japan is likely to face exciting and volatile times ahead

"According to media reports, Ishiba realised that he had no chance of being re-elected as party leader. The yen suffered some losses in early Asian trading this morning, despite it becoming apparent that Ishiba would have to resign, and the final Japanese growth figures for the second quarter coming in significantly higher than expected. Clearly, the political risks associated with the resignation outweigh the positive economic data."

"Over the next few weeks, the main focus will probably be on who will succeed him in the internal party process and become the new prime minister. While it is probably still too early to assess the potential candidates, the market will certainly be looking closely at the successor's stance on monetary policy, the trade agreement with the US, and Japan's fiscal problems. Similar to France (see above), Japan is also likely to face exciting (and volatile) times ahead."