Japan’s Political Uncertainty Sends Yen Higher: Markets Wrap
Japan’s currency rose as much as 0.7% against the dollar, before paring back some of the gains, as the ruling coalition suffered a historic setback in an upper house election Sunday.
The yen strengthened after Japan’s ruling coalition suffered a historic defeat in the weekend’s upper house election, setting the stage for political uncertainty. Asian stock markets were poised for a mixed start.
Japan’s currency rose as much as 0.7% against the dollar, before paring back some of the gains, as the ruling coalition suffered a historic setback in an upper house election Sunday. Nikkei stock futures were little changed, while onshore markets are closed for a holiday. US equity-index futures edged up 0.1% in early Asian trading.
Traders are focused on how the political uncertainty may play out in Japan as Prime Minister Shigeru Ishiba will now try to govern with some support from the opposition. It’s the first time since 1955 that a leader from the storied Japanese party will govern the country without a majority in at least one of the legislative bodies.
“Uncertainty usually tends to favor the yen, at least initially,” said Rodrigo Catril, a currency strategist at National Australia Bank in Sydney. “Overall, the election outcome is not good news for Japanese assets and we would look to fade yen strength.”
Meanwhile, US President Donald Trump pushed back on a report that Treasury Secretary Scott Bessent advised that markets would react badly if he fired Federal Reserve Chair Jerome Powell.
“Powell’s removal as Fed Chair remains unlikely, and even in such a scenario, it is hard to see the other governors voting for cuts if the economic backdrop didn’t warrant them,” Barclays strategists including Themistoklis Fiotakis wrote in a note to clients. “Outside of this headline noise, there have been signs of dollar consolidation, perhaps as a reflection of a changing reaction function to tariffs by markets.”
On tariffs, European Union envoys are set to meet as early as this week to formulate a plan for measures to respond to a possible no-deal scenario with Trump, whose tariff negotiating position is seen to have stiffened ahead of an Aug. 1 deadline.
Eyes in Asia will soon focus on Chinese loan prime rates on Monday. China’s commercial banks are likely to keep their rates unchanged for a second straight month, taking cues from the People’s Bank of China as growth data shows signs of resilience, according to Bloomberg Economics.
“With second-quarter GDP data showing broad resilience in the economy amid a 90-day trade-war truce, the central bank is probably in no rush to ease,” BE economist Eric Zhu wrote in a note. “Given their narrow net interest margins, banks don’t have a strong incentive to reduce lending rates without further PBOC cuts.”
Back to Japan, Traders had been on tenterhooks for weeks ahead of the election, with concerns that a poor showing by Ishiba’s party would open the door to more government spending and tax cuts. That’s put the yen under pressure and sent Japanese government bond yields to multi-year highs.
“There was a lot of pessimism going in,” said Steven Englander, head of global G-10 FX research at Standard Chartered Plc. “The yen has recovered only two-three days of losses. Even with the gains it is just slightly off the lowest levels of the last year.”
Some of the main moves in markets:
Stocks
S&P 500 futures were little changed as of 8:32 a.m. Tokyo time
Hang Seng futures rose 0.1%
S&P/ASX 200 futures fell 0.6%
Currencies
The Bloomberg Dollar Spot Index was little changed
The euro was little changed at $1.1631
The Japanese yen rose 0.3% to 148.42 per dollar
The offshore yuan was little changed at 7.1783 per dollar
The Australian dollar was little changed at $0.6510
Cryptocurrencies
Bitcoin fell 0.7% to $117,358.97
Ether rose 0.1% to $3,746.41
Bonds
Australia’s 10-year yield was little changed at 4.34%
Commodities
West Texas Intermediate crude rose 0.1% to $67.44 a barrel
Spot gold was little changed
