Japanese stocks have rallied as the yen has dropped to a three-month low. The currency’s fall follows Sunday’s election, where Prime Minister Shigeru Ishiba’s ruling coalition lost its parliamentary majority, raising political and economic uncertainty. The Liberal Democratic Party (LDP) and junior partner Komeito secured only 215 seats in the lower house, falling short of the 233 needed for a majority.
Despite this political uncertainty, the Nikkei 225 index climbed 1.45% to 38,463.50, recovering from a lower opening. The rally was attributed to the weaker yen, which makes Japanese exports more competitive and boosts corporate earnings. The yen has hit a a low of 153.85 per US dollar, its weakest level since late July.
Market reactions highlighted mixed sentiments. "The election outcome is undeniably negative for market stability, yet the end of the uncertainty offers some relief," said Masahiro Ichikawa, chief strategist at Sumitomo Mitsui DS Asset Management. Analysts anticipate that opposition parties, potentially new coalition partners, might lean towards more government spending and maintaining low interest rates.
Bond yields reflected the economic shift. The 30-year Japanese Government Bond yield rose to 2.20%, the highest since August, amid expectations of delayed Bank of Japan rate hikes. This steepening yield curve signals anticipation of increased fiscal spending under a potential new government coalition.
Japan’s election results come just before the US presidential vote, adding another layer of uncertainty for global investors.
