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(Bloomberg) — The yen extended losses to 1% while Japanese stocks climbed Monday as investors mulled the implications of the Liberal Democratic Party and its coalition partner losing their majority.
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The slide in the currency as far as 153.88 against the dollar came after four straight weekly declines. The yen has now given up all its gains since the Bank of Japan increased interest rates in late July, raising the risk that authorities may wade back into the market to protect the currency as the political uncertainty clouds the rate trajectory.
“This result is definitely a concern for many investors, because we have no clear picture about who’s going to be leading the country,” said Hebe Chen, a market analyst at IG Markets Ltd. “The LDP is in a very difficult position and there’s no one option that can be easily settled.”
The yen traded at around 153.66 at 3 p.m. in Tokyo after Prime Minister Shigeru Ishiba vowed to restore political stability, in comments at a press conference that indicated he doesn’t intend to step down. Japan’s currency has depreciated 7% against the dollar this month, making it the worst performer among its Group-of-10 peers.
The Nikkei 225 Stock Average rose 1.8%, the biggest gain in more than three weeks. The Topix Index climbed 1.5%.
While political instability is typically negative for equities, signs that Ishiba can secure enough support to stay on can be viewed as a positive factor. Currency declines also tend to support the Japan’s stock market.
“The market was discounting the LDP losing its majority, so today’s move up is just reactionary,” said Amir Anvarzadeh, Japan equity strategist at Asymmetric Advisors. “I wouldn’t read too much into it. We’re seeing a major political realignment, and the dynamics of the market are going through a shift. It’s not necessarily positive or negative for the market.”
Support for the LDP and its partner Komeito fell short of the 233 seats needed for a majority in the lower house, according to a tally by public broadcaster NHK. Surveys by other media pointed to similar results.
In the fixed-income market, the yield on benchmark 10-year government bonds rose 2.5 basis points to 0.97%. The LDP may team up with a party that has pledged to cut consumption and income taxes and is likely to pursue expansionary fiscal policies, said Katsutoshi Inadome, senior strategist at Sumitomo Mitsui Trust Asset Management Co.