(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.
“Bank of Japan policy should remain accommodative, with even supposed monetary hawk Prime Minister Ishiba recently declaring ‘this is not an environment for raising rates’, and the other parties even more opposed to tightening,” said Richard Kaye, a portfolio manager at Comgest Asset Management.
Elsewhere in Asia, Chinese shares edged lower 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.”
