Markets expected Japan’s ruling party loss
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On Sunday, Prime Minister Shigeru Ishiba’s coalition suffered a big loss in the upper house election. That setback could slow new policies and increase the budget deficit, outcomes investors have already anticipated. Exit polls from Sunday’s vote show the coalition will lose control of the upper house and end up in the minority in both chambers of parliament. Because markets are closed on Monday for a holiday, the yen could be the first sign of any fallout according to Reuters. The currency has already weakened a lot this year as traders bet on higher taxes and a bigger budget deficit. The result, while not a total surprise, comes as Japan races to secure a tariff deal with U.S. President Donald Trump before the August 1 deadline. Last week, Japanese government bonds fell sharply, pushing 30‑year yields to record highs. At the same time, the yen slid to its lowest levels in months against both the U.S. dollar and the euro. “I will not chase the coalition loss trades,” said Rong Ren Goh, a fixed‑income portfolio manager at Eastspring Investments. “I expect investors to take time to evaluate the results and focus on trade talks, which are another major risk for Japan.” Uncertainty around coalition’s next move It may take a while before it’s clear whether the coalition will try to govern as a minority or team up with a new partner. One possible new ally is the Democratic Party for the People (DPP), which has urged the Bank of Japan to reverse policy and loosen monetary settings. Traders are braced for the LDP to agree to big tax cuts to win opposition support. Ishiba’s own future is still up in the air, though he said on Sunday he plans to stay in his post. Inside the LDP, Sanae Takaichi—an Abenomics backer…
