Yen Advances as Japan’s LDP Coalition Projected to Lose Majority

The yen strengthened against the dollar as traders reacted to Japan’s ruling coalition failing to win a majority in the upper house election.

Japan’s currency gained as much as 0.7% to 147.79 per dollar. The ruling Liberal Democratic Party along with longtime partner Komeito lost its majority in the chamber, public broadcaster NHK reported. It’s the first time since 1955 that a leader from the storied Japanese party will govern the country without a majority in at least one of the legislative bodies.

Japan is headed into a period of political uncertainty as Prime Minister Shigeru Ishiba tries to govern with some support from the opposition and “uncertainty usually tends to favor the yen, at least initially,” said Rodrigo Catril , a currency strategist at National Australia Bank in Sydney. “Overall, the election outcome is not good news for Japanese assets and we would look to fade yen strength.”

Traders had been on tenterhooks for weeks ahead of the election, with concerns that a poor showing by Ishiba’s party would open the door to more government spending and tax cuts. That’s put the yen under pressure and sent Japanese government bond yields to multi-year highs.

The yen has also experienced increased volatility since US President Donald Trump ’s first tariff announcement in April. The uncertainty over trade hasn’t lifted with the election as Japan still faces an Aug. 1 tariff deadline and negotiations on a deal with the US have yielded little progress.

With Monday being a holiday, the nation’s stock and government bond markets are closed, making the yen the most important asset to gauge investor reaction.

Investors had been bracing for a potential triple dip this week in Japanese bonds, stocks given that polls pointed to a defeat for the LDP.