Economy

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

While stock options were integral to Silicon Valley’s success, Europe has been hampered by bureaucracy and by taxing employees too early, among other restrictions.The European Union needs a coordinated industrial policy, rapid decisions and massive investment if it wants to keep pace with the U.S. and China economically, Mario Draghi said in a long awaited report last month. Over 500 startup CEOs and founders joined a campaign called “Not Optional” in 2019 to change rules that govern employee ownership  —  the practice of giving staff options to acquire a slice of the company as they compete for talent with U.S. firms.Germany, France, Portugal and the UK lead European countries in making changes that match or exceed those of the U.S., while Finland, Switzerland, Norway and Sweden got lower ratings in the Index report.When companies such as Revolut and others go public, that ownership translates into real money for employees, said Martin Mignot, a partner at Index and an investor at fintech Revolut, which is valued at $45 billion.($1 = 0.9236 euros) More

SINGAPORE (Reuters) – The yen touched a three-month low on Monday as Japan’s ruling coalition lost its parliamentary majority and investors figured that would likely slow future interest rate hikes, while the dollar headed for a monthly gain on rising U.S. yields.On the dollar, the yen hit its weakest since late July at 153.3 in early-morning trade and it touched the same milestone at 165.36 to the euro.Prime Minister Shigeru Ishiba’s Liberal Democratic Party, which has ruled Japan for almost all its post-war history, and coalition partner Komeito took 209 of 465 lower house seats, public broadcaster NHK reported, with all but 20 accounted for.That was down from the 279 seats they held previously and marked the coalition’s worst result since it briefly lost power in 2009.A period of fractious deal making is likely to ensue and with cost-of-living pressures a major issue, traders think any resulting government will pressure the Bank of Japan to take policy normalisation very slowly.”The market sees a higher risk of economic policy becoming more dovish,” said analysts at Nomura in a note.DOLLAR GAINSElsewhere currency markets were broadly 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 bets on Donald Trump winning the presidency lifted U.S. yields.At $1.0795 the euro was steady on Monday but down more than 3% on the month. Sterling bought $1.2961 for a 3.1% drop through October so far.The U.S. dollar index has climbed 3.6% during October, its sharpest monthly rise since April 2022.Ten-year Treasury yields are up 40 basis points for October against a rise of 16 bps for 10-year bunds and 23 bps for gilts.The Australian dollar bought $0.6610 on Monday, with disappointment at the lack of detail or urgent government spending in China’s stimulus plans helping drag it about 4.5% lower through October. The New Zealand dollar traded near a three-month low of $0.5974, down nearly 6% for the month.The week ahead is crowded with data, with inflation readings for Europe and Australia, gross domestic product data in the U.S. and purchasing managers’ indexes for China.An interest rate decision is also due in Japan on Thursday, though no policy change is expected.Weekend data showed China’s industrial profits plunged in September, with a year-on-year drop of 27.1%. The yuan was under pressure in early offshore trade and headed for a monthly fall of around 1.9%. More

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(Reuters) – A look at the day ahead in Asian markets. A hugely pivotal week for world markets begins with investors in Asia already bracing for volatile trading in Japanese assets on Monday after Prime Minister Shigeru Ishiba lost his parliamentary majority in the country’s general election.Ishiba’s Liberal Democratic Party has ruled Japan for almost all of its post-war history, so the initial market reaction to a political earthquake of this magnitude could trigger a selloff in the yen and Japanese stocks, and higher Japanese Government Bond prices.More broadly, the shockwaves could undermine the political stability and continuity many analysts say the Bank of Japan needs to conduct monetary policy. The BOJ sets interest rates on Wednesday.The BOJ’s decision is one of several key events this week that could go a long way to shaping market and investment trends for the rest of the year. Five of the ‘Magnificent Seven’ megacap U.S. tech giants release company earnings this week, and U.S. nonfarm payrolls for October will be released on Friday.Staying in Asia, purchasing managers index data this week will give the earliest insight into how economic activity across the continent held up in October, most notably in China. Is it too early for Beijing’s recent stimulus to have had any effect?Probably. And the market impact is understandably beginning to fade too. Chinese stocks inched up 0.8% last week, consolidating after a few rollercoaster weeks. Meanwhile, figures on Sunday showed industrial profits in China plunged 27.1% in September from a year earlier, the steepest fall this year. Asian stocks more broadly softened last week, with the MSCI Asia ex-Japan index down nearly 2%, the third weekly decline in a row. Japan’s benchmark Nikkei 225 index fell 2.7% for its second consecutive weekly loss as investors reduced risk exposure ahead of Sunday’s general election.Contrast that with the Nasdaq, which got a huge boost from Tesla (NASDAQ:TSLA)’s remarkable rally after its third-quarter earnings. The tech-heavy index rose for a seventh week in a row, and over the past year it has risen in all but 15 of the last 52 weeks. The S&P 500 dipped slightly, although it is still hugging the previous week’s all-time high, while the Dow Jones shed more than 2%. The emerging markets team at Barclays summed up the general mood pretty well: “The dollar is likely to remain on the front foot, and U.S. rates are likely to remain elevated, creating a somewhat painful backdrop for EM assets,” they wrote on Friday.But with so much event risk looming, not least the U.S. Presidential election on Nov. 5, there may be a limit to how high Treasury yields can go this week.Here are key developments that could provide more direction to markets on Monday:- Fallout from Japanese election- Hong Kong trade (October)- Thailand trade (October) More

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