Item 1 of 4 A passerby passes an electronic screen displaying the Nikkei Stock Average outside a securities company in Tokyo on October 28, 2024. Reuters/Kim Kyung-hoon
(1/4)A passerby passes an electronic screen displaying the Nikkei Stock Average outside a securities company in Tokyo on October 28, 2024. Reuters/Kim Kyung-hoon buys license rights, opens in new tab TOKYO, Oct. 28 (Reuters) – Japanese Prime Minister Shigeru Ishiba’s coalition government loses its majority in parliament in a crushing defeat in Sunday’s general election, leaving policy and economic issues at risk. Stock prices rose sharply on Monday as the yen fell to a three-month low as uncertainty grew over the future of the economy.
Ishiba’s Liberal Democratic Party (LDP), which has ruled Japan for most of its postwar history, and junior coalition partner Komeito won 215 seats in the lower house, falling short of the 233 seats needed for a majority. Until now, the Liberal Democratic Party had 247 seats and the Komeito Party had 32 seats.
As a result, parties are forced to enter into cumbersome power-sharing arrangements to govern, potentially leading to political instability.
The Nikkei Stock Average (.N225) rose 1.45% to 38,463.50 at the midday break, having risen nearly 2% earlier. The stock opened 0.4% lower.
The yen accelerated its decline throughout the trading session, falling to 153.885 yen to the dollar for the first time since July 31. As of 0230 GMT, the dollar was down about 0.8% to 153.60 yen.
Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management, said, “There is no doubt that the election result itself will be negative for the stock market due to heightened political uncertainty.”
“But part of the rally is the sense of relief that this big risk event has passed. And there’s also the weaker yen.”
A weaker currency benefits Japan’s leading exporters, as it boosts their overseas sales. It also makes Japanese stocks cheaper for foreign investors.
Open in new tabThe Transportation Equipment sector (.ITEQP.T) was the best performer among the 33 industry groups on the Tokyo Stock Exchange, rising more than 3%. Toyota Motor Corporation (7203.T), Open in new tab rose nearly 4%, and Nissan Motor Co. (7201.T), Open in new tab rose 3.3%. Chip sector stocks also outperformed, tracking gains in their U.S. peers from Friday. Chip testing equipment maker Advantest (6857.T) opened in new tab soared 4.7%, becoming the biggest point gainer on the Nikkei average.
“I don’t think the bull market will continue,” said Norihiro Yamaguchi, senior Japan economist at Oxford Economics.
“Stock markets will continue to be lackluster until political uncertainty is resolved,” he said. “We expect bond yields to remain high as concerns about fiscal management easing grow.”
Benchmark 10-year government bond futures fell 0.11 yen to 143.95 yen, reversing earlier gains.
The yield curve steepened, with the 5-year Treasury yield rising 0.5 basis points (bps) to 0.58%, while the 30-year Treasury yield rose 4.5 basis points (bps) to 2.215%.
The 10-year bond yield rose 1.5 basis points to 0.96%.
Following the election results, market attention has focused on the policy stances of potential opposition parties, many of whom support low interest rates. The market may also price in more aggressive government spending.
Analysts at Morgan Stanley said in a note that the Coalition’s defeat could reduce the likelihood that the next government will implement “a more difficult agenda, such as increasing corporate tax rates.”
Analysts at BNY said the dollar could rise to 155 yen again as the Bank of Japan downplays the need for any immediate rate hikes. The central bank will next decide on policy on Thursday, with no changes expected.
Japan’s general election was held nine days before the counting of votes in the closely contested US presidential election, and investors are betting on a bullish dollar and rising yields if Donald Trump becomes president again and Republicans win the House and Senate. We are considering the possibility.
The Nikkei Stock Average fell due to rising political uncertainty.
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Reported and written by Brigid Riley and Kevin Buckland in Tokyo. Additional reporting by Vidya Ranganathan in Singapore. Edited by: William Mallard and Lisa Shoemaker
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