Due to the setback suffered by Prime Minister Ishiba Shigeru’s ruling coalition in the upper house election, which has brought uncertainty to the country’s policy direction, the Japanese yen and stock market may experience fluctuations this week.
Ishiba Masashi said that despite the Liberal Democratic Party (LDP) being in power for the first time since 1955 without a majority in at least one legislative body, he still intends to remain in office.
The yen rose as much as 0.7% against the dollar overnight to 147.79, but had fallen back to 148.04 by 3:26 p.m. Tokyo time.
Japanese stock index futures traded in a narrow range as investors weighed the historic defeat of the Liberal Democratic Party. Tokyo’s spot stock trading was closed on Monday due to a national holiday.
Uncertainty usually benefits the yen, at least initially. Japan is heading into a period of political uncertainty – the base case is that Shigeru Ishiba remains in power and attempts to gain some support within the opposition to govern, but this likely means a larger fiscal deficit. The prospect of the Bank of Japan raising interest rates may now be delayed for some time. Overall, the election results are not good news for Japanese assets, and we expect the yen’s strength to weaken.
Some investors had already braced for a greater setback for the ruling coalition and even expected Ishiba to step down. The unwinding of these positions, along with the easing of political risk as the event passed, drove the initial rebound in the yen.
However, the ruling coalition has lost its majority, meaning the LDP will no longer be able to push through legislation on its own. Concerns over potential fiscal expansion remain. The yen is expected to fluctuate within the range of 145 to 150 this week, with the market closely watching the outcome of the Japan-US tariff negotiations.
Technical analysis:
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Gold: The blue zone we alerted you to last Friday performed very well and tenaciously in today’s Asian session, having rebounded by more than $20. As the price has recaptured the 3360/50 level today, it is reasonable to adopt a pullback buying strategy. It is recommended to pay attention to the performance of the green zone in the plugin. For detailed positions, please consult the plugin.
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Nasdaq: If the price directly breaks through the 23150/23180 range, then maintain the short-term momentum break operation. Lock the profit and loss ratio at around 1:1 and advance the protection. Additionally, we also maintain the rebound long position operation after the low sweep liquidity in the yellow area below. For detailed positions, please consult the plugin.
(NASDAQ 15-minute chart)
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Crude oil: As the price trend has not been strengthened, within the day, while we continue to wait for long positions, it is necessary to first wait for a momentum breakthrough signal to appear around 67.50, and then it is advisable to buy in the nearest demand area. For detailed positions, please consult the plugin.
(Crude Oil 15-Minute Chart)
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Key economic data and events to focus on today:
22:00 US Conference Board Leading Index for June
At 20:30, the Bank of Canada will release the Business Outlook Survey and the Consumer Expectations Survey reports.
