Yen fell significantly after this weekend’s snap election resulted in a fragmented parliament, leaving no single party with a clear mandate to govern. This political uncertainty introduces the prospect of days or even weeks of negotiations as parties attempt to form a coalition, raising concerns among traders about potential change in leadership and policy direction. Despite the political instability, Nikkei rebounded notably, primarily driven by the weaker yen rather than optimism about the electoral outcome.
Election results showed that Prime Minister Ishiba’s Liberal Democratic Party and its coalition partner Komeito secured only 215 seats in the lower house of parliament, a substantial decline from their previous 279 seats. The opposition Constitutional Democratic Party of Japan increased its seats to 148 from 98 but still fell short of the 233 required for a majority. Under Japan’s constitution, political parties now have 30 days to negotiate and form a governing coalition. The lack of a decisive outcome casts doubt on Ishiba’s tenure as premier, especially considering he assumed office less than a month ago.
USD/JPY’s rise from 139.57 resumed after brief consolidations by breaking through 153.18 temporary low. Further rally is expected as long as 151.44 support holds. The question is whether USD/JPY could sustain above 61.8% retracement of 161.94 to 139.57 at 153.39. If it can, the next target wil be a retest on 161.94 high.
