(Bloomberg) — The yen extended its decline to 1% on Monday, while Japanese stocks rose on Monday as investors pondered the impact of losing its majority to the Liberal Democratic Party and its coalition partners.
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The currency fell to 153.88 against the dollar, following a fourth consecutive week of declines. The yen has given up all of its gains since the Bank of Japan raised interest rates in late July, raising the risk that authorities will return to the market to protect the currency as political uncertainty clouds the trajectory of interest rates. There is.
“This result is definitely a concern for many investors, as there is no clear picture of who will lead the country,” said Hebe Chen, market analyst at IG Markets. There are no easy options. ”
The yen was trading around 153.66 yen at 3 p.m. in the Tokyo market after Prime Minister Shigeru Ishiba announced at a press conference that he had no intention of resigning and vowed to restore political stability. Japan’s currency has fallen 7% against the dollar this month, making it the worst performer among the Group of Ten economies.
The Nikkei Stock Average rose 1.8%, marking the first significant increase in three weeks. The TOPIX index rose 1.5%.
Political instability is usually negative for stock prices, but signs that Ishiba can secure enough support to continue in the role could be seen as a positive. Currency depreciation also tends to support the Japanese stock market.
“The market was discounting the Liberal Democratic Party losing its majority, so today’s rally is just reactionary,” said Amir Anbarzadeh, Japanese equity strategist at Asymmetric Advisors. “I’m not going to read too much into it. We’re seeing a major political realignment, and market dynamics are changing as well. That’s not necessarily positive or negative for the market.”
According to a tally by public broadcaster NHK, support for the Liberal Democratic Party and its partner Komeito fell below the 233 seats needed for a majority in the House of Representatives. Other media studies have shown similar results.
In the bond market, the benchmark 10-year government bond yield rose 2.5 basis points to 0.97%. Katsutoshi Inadome, senior strategist at Sumitomo Mitsui Trust Asset Management Co., Ltd., said the Liberal Democratic Party is likely to partner with a party that promises to cut consumption and income taxes and is likely to pursue expansionary fiscal policy. Ta.
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Much of the currency weakness reflects Japan’s ultra-low interest rates compared to the United States and other major economies. This gap is unlikely to change much anytime soon, and the Bank of Japan is widely expected to leave interest rates unchanged at its meeting that ends on Thursday.
Although it is still a long way from the lowest level of 161.95 recorded in July, Japan’s head of FX, Jun Mimura, said last week that he is monitoring currency trends with more urgency due to the recent decline. I warned you.
On the other hand, Japanese stocks have continued to struggle since hitting a record high in July.
“The market wants the current coalition to survive,” said Gary Dugan, CEO of the Global CIO Office. “Foreign investors want the corporate sector to continue on the path of restructuring without any political noise.”
Still, CLSA Securities Japan strategist Nicholas Smith said it was important to remember that Mr. Ishiba had originally said he wanted to raise taxes. “The weaker the Liberal Democrats are, the harder it is for them to achieve that. That’s good for the market,” Smith said.
Tim Waterer, chief market analyst at Sydney-based KCM Trade, warned of the risk of “a stalemate over the legislative process, a scenario that does not bode well for the yen and the Nikkei average, at least in the short term.”
“The yen has been under selling pressure throughout October, and even a close election result probably won’t help the Japanese currency,” Waterer said.
–With assistance from Momoka Yokoyama, Matthew Burgess, Michael G. Wilson, Umesh Desai, Mia Glass, Hideyuki Sano, Daisuke Sakai, Alice French, Saburo Funahiki, Masahiro Hidaka, Hidenori Yamanaka, and Masaki Kondo .
(Adds comments from Ishiba and strategists.)
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