SINGAPORE — The yen hit a three-month low on Monday as Japan’s ruling party lost its parliamentary majority, while oil tumbled after Israel’s weekend strike on Iran bypassed oil or nuclear targets.
Japan’s Nikkei, after initially falling, rose 1.9 percent, and the yen slipped as far as 0.9 percent to 153.88 per dollar following the ruling Liberal Democratic Party’s (LDP) weakest result since 2009 in Japan’s weekend election.
Brent crude futures fell 5 percent, trading as cheaply as $71.99 a barrel after Israel’s response to an Iranian missile attack focused, so far, on missile factories and other sites near Tehran and not on disrupting energy supplies.
Passersby chat in front of an electric board displaying the Nikkei stock average outside a brokerage in Tokyo, Japan, on Sept. 30, 2024. REUTERS PHOTO
In Japan, the LDP, which has ruled for most of the post-war years, and junior coalition partner Komeito won 215 lower-house seats at Sunday’s election, public broadcaster NHK reported.
This falls well short of the 233 needed for a majority, and the yen was squeezed since investors figured any government that emerges is likely to make a dovish shift in economic policies.
“The administrative power of the ruling coalition has inevitably become more fragile, and we see likelihood of pressure building towards more fiscal expansion, given that some opposition parties advocate this,” Goldman Sachs analysts wrote.
“The markets are likely to think this means more trouble for the yen with 155 the first target and [the finance ministry’s] line in the sand at 160,” said Bob Savage, head of markets strategy and insights at BNY, in a note.
Nomura analyst Yusuke Miyairi also expects the Bank of Japan, which reviews policy on Thursday, will be more dovish and that will hurt the yen.
“We expect this political turmoil largely to negatively influence Japanese stock prices,” he said.
Gains in the Japanese stock market, which often moves in the opposite direction to the yen as a weaker currency can help exporters, were led by technology companies.
Rising dollar
Broader currency markets were steady, leaving the dollar on course for its largest monthly rise in 2-1/2 years as signs of strength in the US economy and the prospect of a Donald Trump presidency have driven US yields sharply higher.
While markets have started pricing in a second Trump administration in recent weeks, Vice President Kamala Harris is leading Trump nationally by a marginal 46 percent to 43 percent, a recent Reuters/Ipsos poll showed.
At 4.23 percent, benchmark 10-year Treasury yields are up 43 basis points (bps) through October, against a rise of 16 bps for 10-year bunds and 23 bps for gilts.
Markets see a 95-percent chance of a 25 bps Federal Reserve rate cut at its November meeting. Odds for a bigger half-point cut were at 50 percent a month ago, according to CME’s FedWatch tool.
Elsewhere, US stock futures were up 0.4 percent ahead of a big week of earnings and data. In early European trades, the pan-region Euro Stoxx 50 futures were up 0.26 percent, and German DAX futures were up 0.21 percent.
Five of the “Magnificent Seven” group of megacap companies are set to report: Google parent Alphabet, Microsoft, Facebook owner Meta, Amazon and Apple
The US jobs report on November 1 comes as investors are weighing whether a stronger-than-expected economy could lead to fewer interest rate cuts, while inflation readings are due in Europe and Australia.
Gold, which hit record highs last week, hovered just shy of those levels at $2,736 an ounce. REUTERS
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