Japan’s Political Shift Sparks Market Uncertainty Amid Trade Deadline

Markets anticipated Japan's ruling coalition losing control of the upper house in Sunday's election, setting the stage for potential fiscal policy shifts. With Monday's market holiday, the yen—already weakened by 2024's tax hike expectations—may become the first indicator of economic fallout.

Government bonds plummeted last week, driving 30-year yields to historic highs as the yen hit multi-month lows against both the dollar and euro. "This isn't the time for knee-jerk reactions," cautioned Eastspring Investments' Rong Ren Goh, noting investors will likely prioritize assessing US-Japan trade negotiations over immediate political trades.

The coalition's path forward remains unclear, with potential alliances like the DPP—which advocates for BOJ policy reversal—introducing further monetary uncertainty. Traders now brace for possible tax cuts as the LDP seeks opposition support.