Ahead Today
G3: Eurozone retail sales
Asia: Vietnam CPI, Q3 GDP, and trade data, Thailand CPI
Market Highlights
Sanae Takaichi has won the Liberal Democratic Party (LDP)’s leadership race, securing 185 votes in the runoff vote against Shinjiro Koizumi’s 156 votes. The result signals strong internal support for Takaichi, who is now set to face a parliamentary vote on 15 October to become Japan’s next prime minister. She is likely to become prime minister, given the ruling coalition led by LDP still has the largest number of seats in parliament, despite losing its majority in both the lower and upper houses.
Takaichi’s victory suggests a potential shift toward more stimulative fiscal policy in the near term amid rising prices. On monetary policy, the BOJ may proceed with a gradual pace of rate normalization. Before the LDP election, Takaichi has expressed caution about aggressive monetary tightening, warning that it could deter corporate investment in new technologies. The Japanese yen has weakened by more than 1%, reaching the 150.00 level against the US dollar.
BOJ governor Ueda has recently reiterated that if economic activity and prices improve in line with the bank’s outlook, future rate hikes remain on the table. However, he has stopped short of committing to a move in October.
In US, there is no release of the nonfarm payrolls data last Friday due to the ongoing partial US government shutdown. However, the ISM services index eased to 50.0 in September from 52 in August, remaining just within expansion territory. ISM services prices paid remained elevated, while the new orders sub-index fell to 50.4 from 56.0, The services employment sub-index also edged up to 47.2 from 46.5, still reflecting weak hiring conditions.
Regional FX
The key events this week include monetary policy decisions by the Bank of Thailand (BoT) and Bangko Sentral ng Pilipinas (BSP). In Thailand, CPI data due today is likely to show headline inflation remaining in prolonged deflation. This has kept real policy rates elevated relative to the 2015–2019 pre-COVID average, providing the BoT with room to ease further. We expect the BoT to deliver a 25bps rate cut this week, which will also be the first policy decision under new Governor Vitai. A rate cut would signal his dovish leanings. However, with markets largely pricing in the October rate cut, the immediate impact on the Thai baht may be contained. We expect the baht to remain around 32.50 against the US dollar.