21 Jul 2025

⚠️ Japan House of Councillors Election – Key Takeaways for Markets & Policy

▶️ Political Setback: PM Shigeru Ishiba’s LDP-led coalition failed to secure a majority, increasing political uncertainty and likely altering fiscal and monetary trajectories. ▶️ Market Impact: Greater opposition influence may push for looser monetary policy, pressuring the BOJ to delay rate hikes. This could weaken the Yen further (note that this is NOT market's first reaction as the yen is strengthening today) and push JGB yields higher ▶️Fiscal Concerns: Opposition-backed tax cuts and cash handouts could deepen Japan’s already high public debt burden, risking credit rating downgrades and higher borrowing costs. ▶️ Geopolitical Risks: A weakened coalition may delay or derail a U.S.-Japan trade agreement ahead of the August 1st deadline, worsening trade tensions. 👉Investor Outlook: Expect a more fragmented & uncertain policy landscape. This could mean higher JPY & JGB volatility during the Summer.

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