(Bloomberg) – The yen fell to a three-month low on Monday and futures markets pointed to a decline in Japanese stocks, after the Liberal Democratic Party and its coalition partners suffered a blow in a snap election.
Most Read Articles on Bloomberg
The currency fell by as much as 0.6% against the dollar, after a fourth straight week of declines. This has once again raised the risk that the authorities will intervene in the market again to protect the yen.
While a weaker currency typically supports Japanese stocks, investors are worried that political stability could call Prime Minister Shigeru Ishiba’s position into question. Nikkei futures traded in Chicago opened lower, suggesting Tokyo markets could open more than 1% lower.
Tadashi Matsukawa, head of fixed income management at PineBridge Investments Japan, said, “The first reaction is likely to be a decline in stock prices and a depreciation of the yen.” Matsukawa added that bond yields could fall.
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.
“This could create a quagmire regarding the legislative process,” said Tim Waterer, Sydney-based chief market analyst at KCM Trade. “This scenario may not bode well for the yen and the Nikkei, at least in the short term. No,” he said.
The currency has already been the worst performer among the Group of Ten economies this year, losing more than 7% against the dollar.
Much of the currency weakness reflects Japan’s ultra-low interest rates compared to the United States and other major economies. This wide 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 Thursday.
Although it is still a long way from the lowest level of 161.95 hit in July, Japan’s top currency official, Jun Mimura, said last week that he is monitoring currency trends with more urgency given the recent decline. I warned you. As of 8:40 a.m. in Tokyo, it was trading at 152.82 yen.
“It’s negative for the market in the short term,” said James Salter, founder and chief investment officer of Zenner Asset Management. “The yen could fall further and the whole ‘carry trade’ concerns from August could be reignited.”
story continues
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 political noise.”
Chiyo Takatori, an analyst at Daiwa Securities, said last week that defense stocks, which had been rising on expectations that former Defense Minister Ishiba would increase security-related spending, could take a hit.
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.
–With assistance from Michael G. Wilson, Mia Glass, Hideyuki Sano, Yasutaka Tamura, Daisuke Sakai, Alice French, Saburo Funabiki, Hidenori Yamanaka, Momoka Yokoyama, and Matthew Burgess.
(updates prices and changes charts)
Most Read Articles on Bloomberg Businessweek
©2024 Bloomberg LP
