How Will Japan’s Election Shock Impact the Yen? | Presented by CME Group
[Music] On July 20th, the highly anticipated election in Japan saw significant losses for the coalition government that’s been in power since October. The upstart parties that made waves are being viewed as right-wing populist and their sudden ascension to relevance could send ripples through financial markets. Now, the initial move in the yen was higher. This may come as a surprise to some, but the yen has long been viewed as a safe haven. And perhaps the knee-jerk to a less stable government was to rotate into safety assets like the yen. But is that the proper move considering that the instability in question is centered around Japan itself? Well, Japanese equities seem to shrug off the news as they remain steady. On balance, the Nikai index tends to want a weaker yen that would benefit the huge amount of exports that come from Japan. So perhaps the stock’s lack of reaction is from a belief that the yen’s move could be quickly reversed. The discontent that preceded the election seems to stem from a dissatisfaction over stagnant wages in the face of inflation and the increase in foreign workers. The most important takeaway is that dramatic transitions are usually viewed as having negative implications on the economy and on risk appetite of foreign investors which could hurt Japanese stocks. Of course, these moves are all in their infant stages, and it may take weeks to fully evaluate the change in wind direction. [Music]
Global markets are digesting the unexpected political upheaval in Japan, as newly elected populist representatives get ready to reshape the nation’s policy agenda. Could this shift destabilize the yen or alter the Bank of Japan’s monetary policy path? Presented by @cmegroup
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