Yen climbs after governing party’s election defeat

The Japanese yen rose in the Asian market on Monday at the start of the trading week against a basket of major and minor currencies, heading toward its first gain in the last three days against the US dollar, amid accelerating safe-haven buying of the currency—especially after Japan’s ruling coalition lost its majority in the House of Councillors.

Data released last week in Tokyo showed that inflationary pressures on monetary policymakers at the Bank of Japan had eased, reducing the likelihood of a rate hike in July.

The Price

• Yen exchange rate today: The dollar fell against the yen by 0.6% to (¥147.88), from Friday’s closing price of (¥148.80), after reaching a high today of (¥148.66).

• The yen had lost 0.15% against the dollar at Friday’s settlement, marking its second consecutive daily loss, after weaker-than-expected core inflation data from Japan.

• Last week, the yen declined by 0.95% against the dollar, posting a second straight weekly loss.

Japanese Elections

The Liberal Democratic Party, led by Prime Minister Shigeru Ishiba, won 47 seats—fewer than the 50 required to secure a majority in the 248-seat House of Councillors, in an election where half the seats were up for grabs.

While the election results do not directly determine whether Ishiba’s administration will fall, they further burden the embattled leader, who also lost control of the more powerful House of Representatives in October 2024.

Opinions and Analysis

• Carol Kong, a currency strategist at the Commonwealth Bank of Australia, said that markets had likely priced in a much worse outcome for the ruling coalition ahead of the election, and questioned the yen’s ability to sustain its strength.

• Kong added: “It’s still unclear whether Ishiba can actually remain as prime minister… and what that means for Japan’s trade negotiations with the United States. Prolonged political uncertainty would negatively impact Japanese assets, including the yen.”

Japanese Interest Rates

• Data released Friday showed that Japan’s core inflation in June slowed more than market expectations, reflecting reduced inflationary pressure on the Bank of Japan.

• Following the data, the pricing of the likelihood that the Bank of Japan will raise interest rates by a quarter percentage point in the July meeting fell from 45% to 35%.

• To reassess these expectations, investors are awaiting more data on inflation, unemployment, and wages in Japan.