The yen fell to a three-month low on Monday after Japan’s ruling party lost its parliamentary majority, while oil prices dropped following Israel’s weekend strike on Iran that targeted missile sites rather than oil or nuclear facilities.
Japan’s Nikkei index initially declined but later rebounded by 1.6%. The yen slipped as much as 0.5%, reaching 153.3 per dollar, after the ruling Liberal Democratic Party (LDP) recorded its weakest election result since 2009, winning only 215 lower-house seats according to public broadcaster NHK. This total is well below the 233 needed for a majority, leading investors to expect a potentially dovish shift in economic policies from any new government.
“The markets are likely to view this as a signal of further challenges for the yen, with 155 as the initial target and the finance ministry’s threshold set at 160,” noted Bob Savage, head of markets strategy and insights at BNY.
Meanwhile, gains in the stock market, which often rises when the yen weakens due to benefits for exporters, were primarily driven by technology companies.
In the broader currency market, the dollar remained steady, poised for its largest monthly increase in 2.5 years, fueled by signs of strength in the U.S. economy and the potential for a Donald Trump presidency, which have pushed U.S. yields significantly higher.
Benchmark 10-year Treasury yields have risen to 4.23%, up 43 basis points in October, compared to increases of 16 basis points for 10-year bunds and 23 basis points for gilts.
Markets are pricing in a 95% chance of a 25-basis-point rate cut from the Federal Reserve at its November meeting. A month ago, the likelihood of a larger half-point cut was at 50%, according to CME’s FedWatch tool.
On Monday, the euro held steady at $1.0796, down 3% for October. The New Zealand dollar has fallen nearly 6% this month, impacted by a dovish central bank and disappointing stimulus plans from China.
In other news, U.S. stock futures climbed 0.5% in early trading ahead of a significant week for earnings and economic data.
Five of the “Magnificent Seven” megacap companies are scheduled to report: Alphabet (NASDAQ:GOOGL), Microsoft (NASDAQ:MSFT), Meta (NASDAQ:META), Apple (NASDAQ:AAPL), and Amazon (NASDAQ:AMZN).
The U.S. jobs report on November 1 is expected as investors consider whether a stronger-than-anticipated economy could lead to fewer interest rate cuts, while inflation data is set to be released in Europe and Australia.
Additionally, recent data revealed that China’s industrial profits plummeted 27.1% in September compared to the previous year.
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