Aurelia Butler

TOKYO (Reuters) – The loss of Japan’s ruling bloc’s parliamentary majority has heightened prospects that a new government will need to ramp up spending and of potential complications for further central bank interest rates hikes.Prime Minister Shigeru Ishiba’s ruling Liberal Democratic Party (LDP) and its longtime partner Komeito failed to retain a majority in lower house elections on the weekend, casting doubts over how long the 67-year-old premier can keep his job.”Regardless of who will be in power, the new government will be forced to take expansionary fiscal and monetary policies to avoid inflicting burdens on voters,” said Saisuke Sakai, senior economist at Mizuho Research and Technologies.To stay firmly in power, the LDP, which has governed Japan for almost all its post-war history, will likely need to court smaller opposition parties, such as the Democratic Party for the People (DPP) and Japan Innovation Party (JIP), as coalition partners or at least for policy-based alliances.Both smaller parties have ruled out forming a coalition with the LDP but said they are open to some policy cooperation.In their election campaigns, both the DPP and JIP pledged to lower consumption tax from 10%. DPP’s proposals also included cutting power utility bills and tax for lower-income earners.While Ishiba has already proposed a supplementary budget that exceeds last year’s 13 trillion yen ($85 billion), he could face pressure for a package that exceeds 20 trillion yen, Sakai said.’POLITICAL NOISE’The heightened political turmoil could make it harder for the Bank of Japan in its bid to wean the economy off decades of monetary stimulus, analysts say.The central bank ended negative interest rates in March and raised short-term rates to 0.25% in July on the view Japan was making progress towards durably achieving its 2% inflation target.BOJ Governor Kazuo Ueda has vowed to continue lifting rates and economists don’t see any major immediate change to the broader policy direction.However, a markedly new parliamentary makeup could deprive the BOJ of the political stability it needs to steer a smooth lift-off from near-zero interest rates, analysts say.”The bar is higher for the BOJ to raise interest rates again by the end of this year amid this political noise,” said Masahiko Loo, senior fixed income strategist at State Street (NYSE:STT) Global Advisors.DPP leader Yuichiro Tamaki has criticised the BOJ for raising rates prematurely.JIP proposes legislative changes that would mandate the central bank with objectives beyond just price stability, such as sustained nominal economic growth rate and maximization of employment.Conversely, the biggest opposition, Constitutional Democratic Party of Japan, has called for BOJ’s inflation target to be lowered to one “exceeding zero” from 2% currently, which would reduce the threshold for more rate hikes.At the same time, a weak yen could become a headache for Japanese policymakers by boosting the cost of imported raw materials, pushing up inflation and hurting consumption.If the yen weakens toward 160 per dollar, the BOJ “would be pressured to raise rates again to stem the weakness of the Japanese currency,” said Takeshi Minami, chief economist at Norinchukin Research Institute.The need for another rate hike could also grow if a yen downturn is accelerated by a Donald Trump victory in the U.S. presidential election on Nov. 5, he added.Trump’s tariff and stricter immigration policies are seen as inflationary, which would diminish the need for U.S. rate cuts, in turn pushing the dollar up against the yen.”The visibility has gone down significantly for the BOJ,” Minami said.($1 = 153.5700 yen) More

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TOKYO (Reuters) -Japanese stocks rose strongly on Monday as the yen sank to a three-month low after Prime Minister Shigeru Ishiba’s coalition lost its parliamentary majority in a drubbing in Sunday’s election, raising uncertainty over the path for policy and the economy.Ishiba’s Liberal Democratic Party (LDP), which has ruled Japan for almost all of its post-war history, and junior coalition partner Komeito took 215 seats in the lower house of parliament – well short of the 233 needed for a majority – public broadcaster NHK reported. The LDP previously held 247 seats and Komeito held 32.The outcome may force parties into fractious power-sharing deals to rule, potentially ushering in political instability.The Nikkei share average rose 1.5% to 38,492.25 as of 0039 GMT, and was earlier up nearly 2%. It had opened 0.4% lower.The yen sank as low as 153.34 per dollar for the first time since July 31, and last traded about 0.6% weaker at 153.22 per dollar.”The result of the election itself is a negative for the stock market, without a doubt, because of the rise in political uncertainty,” said Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui (NYSE:SMFG) DS Asset Management.”However, the rally is partly on the fact that this big risk event is now behind us, so there’s a sense of relief. That and the weaker yen.”Benchmark 10-year Japanese government bond futures fell 0.07 yen to 143.99 yen, reversing an earlier rise.The five-year JGB yield rose 0.5 basis point (bp) to 0.58%, the 20-year yield added 2 bps to 1.8%, the highest since Aug. 8, and the 30-year yield gained 3 bps to 1.38%.The election result draws market attention to the policy stance of opposition parties that could become potential partners, many of which favour low interest rates. Markets could also price in more aggressive government spending. The upshot of the post-election uncertainty is “the Bank of Japan to hike later and more fiscal expansion,” leading the yield curve to steepen, said Naka Matsuzawa, chief Japan macro strategist at Nomura.”Reflationary, Abenomics-style policy will stay.”Coalition losses could reduce the chance the next government will implement “more challenging agenda items such as hiking the corporate tax rate”, analysts at Morgan Stanley said in a note.Analysts at BNY said the dollar could potentially rise to 155 yen again, as the BOJ downplays the immediate need for a rate increase and the Japanese election risks stoke additional political instability.Japan’s general election comes nine days before votes are counted in the closely contested U.S. presidential race, with investors weighing the possibility of a bullish dollar and higher yields in the event of another Donald Trump presidency and Republican sweep of the Senate and House of Representatives.(Reporting and writing by Brigid Riley and Kevin Buckland in Tokyo; Additional reporting by Vidya Ranganathan in Singapore; Editing by William Mallard and Lisa Shumaker) More

TOKYO (Reuters) -The make-up of Japan’s future government was in flux on Monday after voters punished Prime Minister Shigeru Ishiba’s ruling coalition, leaving no party with a clear mandate to lead the world’s fourth-largest economy.The uncertainty sent the yen currency to a three-month low as investors and analysts prepared for days, or possibly weeks, of political wrangling to form a government and potentially a change of leader.That comes as the country faces economic headwinds, a tense security situation fuelled by an assertive China and nuclear-armed North Korea, and less than a week before U.S. voters head to the polls in another unpredictable election. Ishiba’s Liberal Democratic Party (LDP) and its junior coalition partner Komeito took 215 seats in the lower house of parliament, down from 279 seats, as voters punished the incumbents over a funding scandal and a cost-of-living crunch. Two cabinet ministers and Komeito’s leader, Keiichi Ishii, lost their seats.The biggest winner of the night, the main opposition Constitutional Democratic Party of Japan (CDPJ), had 148 seats, up from 98 previously, but also still well short of the 233 majority.As mandated by the constitution, the parties now have 30 days to figure out a grouping that can govern, and there remains uncertainty over how long Ishiba – who became premier less than a month ago – can survive after the drubbing. Smaller parties also made gains and their role in negotiations could prove key. “Whether or not Prime Minister Shigeru Ishiba resigns as LDP leader today, it seems unlikely that he will survive to lead a new government as prime minister … though it is possible he could stay on as caretaker,” said Tobias Harris, founder of Japan Foresight, a political risk advisory firm.Ishiba is scheduled to hold a press conference at 2 p.m. (0500 GMT). Ahead of the election, the LDP had been planning to convene parliament on Nov. 7 to confirm the prime minister, according to Japanese media including Jiji and the Yomiuri newspaper. CDPJ leader Yoshihiko Noda has said he would work with other parties to try and oust the incumbents, though analysts see this as a more remote possibility. The LDP has ruled Japan for almost all of its post-war history and the result marked its worst election since it briefly lost power in 2009 to a precursor of the CDPJ.In a statement, the head of Japan’s most powerful business lobby said the country needed political stability to steer an economy that faced urgent tasks such as boosting the supply of nuclear energy and maintaining the momentum for wage hikes.”We strongly hope for policy-oriented politics through the establishment of a stable government centred on the LDP-Komeito (coalition),” Keidanren Chairman Masakazu Tokura said. More

The bank took the decision to maintain a “reasonable abundance of liquidity in the banking system and further enrich the central bank’s monetary policy toolbox,” it said in a statement. State-owned Shanghai Securities News said in an article published shortly after the People’s Bank of China’s (PBOC)notice that the facility was expected to cover three- and six-month tenors and that it would aid liquidity adjustments over the next year, citing people close to the central bank.The PBOC’s announcement said its new tool would have a tenor of less than one year. “The central bank’s choice to launch this new tool at this time is also expected to be a better hedge against the concentrated expiry of medium-term lending facility before the end of the year,” the article said. More

Japan’s Nikkei, after initially falling, rose 1.6% and the yen slipped as far as 0.5% to 153.3 per dollar following the ruling Liberal Democratic Party’s (LDP) weakest result since 2009 in Japan’s weekend election.Brent crude futures were 4.2% lower and traded as cheaply as $67.80 a barrel after Israel’s response to an Iranian missile attack focused, so far, on missile factories and other sites near Tehran and not on disrupting energy supplies. [O/R]In Japan, the LDP which has ruled for most of the post-war years and junior coalition partner Komeito won 215 lower-house seats at Sunday’s election, public broadcaster NHK reported.This falls well short of the 233 needed for a majority and the yen was squeezed since investors figured any government that emerges is likely to make a dovish shift in economic policies. [.T][FRX/]”The markets are likely to think this means more trouble for the yen with 155 the first target and (the finance ministry’s) line in the sand at 160,” said Bob Savage, head of markets strategy and insights at BNY in a note.Gains in the stock market, which often moves in the opposite direction to the yen as a weaker currency can help exporters, were led by technology companies.RISING DOLLARBroader currency markets were steady, leaving the dollar on course for its largest monthly rise in 2-1/2 years as signs of strength in the U.S. economy and the prospect of a Donald Trump presidency have driven U.S. yields sharply higher.At 4.23%, benchmark 10-year Treasury yields are up 43 basis points through October, against a rise of 16 bps for 10-year bunds and 23 bps for gilts.Markets price almost no chance of a Federal Reserve rate cut at its November meeting, down from a 50% chance of a 25 bp cut a month ago, according to CME’s FedWatch tool.The euro was steady on Monday at $1.0796 and down 3% through October. The New Zealand dollar has lost nearly 6% through the month, additionally weighed by a dovish central bank and disappointing stimulus plans from China.Elsewhere U.S. stock futures rose 0.5% in early trade ahead of a big week of earnings and data.Five of the “Magnificent Seven” group of megacap companies are set to report: Google parent Alphabet (NASDAQ:GOOGL), Microsoft (NASDAQ:MSFT), Facebook (NASDAQ:META) owner Meta, Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN).The U.S. jobs report on Nov. 1 comes as investors are weighing whether a stronger-than-expected economy could lead to fewer interest rate cuts, while inflation readings are due in Europe and Australia.Weekend data showed China’s industrial profit dived 27.1% in September versus a year earlier.Gold, which hit record highs last week, hovered just shy of those levels at $2,736 an ounce.(This story has been refiled to fix a typo in paragraph 3) More