The Nikkei 225 ended the week lower by 1.4 percent and the Japanese Yen broke to the stronger side of the 106 psychological level against the US Dollar, as Prime Minister Shinzo Abe announced his resignation today due to health concerns. Just this week, the 65-year-old Abe had marked his legacy as Japan’s longest-serving leader, and will continue on until a successor is chosen.

Global investors will be eyeing this development through the lens of policy continuity, with questions framed around Abenomics in particular. This leadership transition arrives as the Japanese economy is still dealing with the negative impact from the pandemic. Longer-term concerns may also arise over how Japan can navigate ties with major economies such as the US and China in a post-Abe era.

Such a doubt-mired outlook lends itself to this knee-jerk sell-off mode in Japanese assets, with USDJPY set to face more volatility in the short-term. However, any instability and volatility that may arise from a leadership transition are expected to be transitory once global investors have a firmer grasp on Japan’s policy outlook.

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