(Bloomberg) — The yen fell after Japan’s ruling coalition failed to win a majority in parliament, stoking speculation the political uncertainty would impact the central bank’s rate-hike policy. Crude slumps after Israeli strikes on Iran avoided oil facilities.
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The Japanese currency fell as much as 1% to 153.88 per dollar Monday, the weakest level in about three months, after a gamble by Prime Minister Shigeru Ishiba to call a snap election backfired. The weaker yen, which benefits the nation’s export-oriented economy, helped push the Topix index up by as much as 1.6%.
Much of the yen’s weakness reflects the ultra-low level of interest rates in Japan relative to the US and other major economies. This wide gulf is unlikely to change significantly anytime soon, with the Bank of Japan widely expected to keep its policy interest rate unchanged at a meeting that concludes Thursday.
“This is an unexpected reaction,” said Shuji Hosoi, senior strategist at Daiwa Securities. “While the political risk may be increasing, there may be expectations that the Ishiba administration won’t become a lame duck immediately.”
Elsewhere in Asia, Chinese shares fell in early trade after profits at industrial firms plunged in September, a challenge to the economy as deflationary pressures sap the strength of corporate finances.
Crude plunged after Iran said its oil industry was operating normally after Israel struck military targets across the country. Brent crude dropped and West Texas Intermediate fell by more than 5% in early trading before paring declines. Gold edged lower.
Trump Trades
Markets are readying for a barrage of data this week including Chinese economic activity readings, Eurozone and US growth prints as well as a payrolls report to help position portfolios into year-end. Traders will also fine tune expectations of the US election after Asian and emerging market assets extended a slide last week in anticipation Donald Trump will return to the White House.
“As the elections approach and Trump trades increasingly are implemented, the US dollar may remain on the front foot while US rates remain elevated, creating a somewhat painful backdrop for emerging market assets,” Barclays Plc strategists led by Themistoklis Fiotakis wrote in a note to clients. While it may worsen in a Trump win, “there has already been some degree of election premium built into currency markets over recent weeks.”
The rally in stocks faded Friday, with the S&P 500 notching its first weekly loss in seven weeks as a gain in tech stocks failed to offset a drop in bank shares. Five of the so-called Magnificent Seven report earnings this week and are expected to post their slowest collective quarterly earnings expansion in six quarters, according to data compiled by Bloomberg Intelligence.
Elsewhere in Asia this week, major Chinese banks will release earnings reports while the Bank of Japan will give a policy decision. Australia’s inflation data and the official and private Chinese PMI readings will also be closely parsed to help gauge the outlook on the risk-sensitive Aussie and NZ currencies.
Some of the key events this week:
Japan markets open after general election, Monday
Bank of Canada Governor Tiff Macklem speaks, Monday
Japan unemployment, Tuesday
US job openings, Conference Board consumer confidence, goods trade, Tuesday
Alphabet, HSBC, Santander earnings, Tuesday
Australia CPI, Wednesday
Eurozone consumer confidence, GDP, Wednesday
Germany GDP, CPI, unemployment, Wednesday
UK Chancellor of the Exchequer Rachel Reeves presents budget to Parliament, Wednesday
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