Key points:
The Nikkei index saw a 1.39% decline, closing at 38,411.96. Broader sentiment was similarly negative, with the Topix falling 1.06% to 2,651.47. T
his downward movement reflects rising uncertainty over Japan’s political landscape as the Liberal Democratic Party (LDP) faces the risk of losing its majority in the lower house during the upcoming snap election on October 27.
See: The Nikkei 225 closing at 38,463.15 with ongoing downward momentum on the VT Markets app.
Local media has reported that the LDP, along with its coalition partner Komeito, may struggle to secure the 233 seats needed for an outright majority in the 465-seat parliament.
Traders remain wary, particularly since Japan’s stock market historically tends to perform better in the lead-up to elections.
However, the current situation appears different. The possibility of the LDP needing to form a coalition with another party, potentially leading to shifts in policy, is creating anxiety.
This stands in contrast to expectations seen in previous election cycles, forcing market participants to reevaluate their strategies.
On a global level, a weak close on Wall Street has weighed further on sentiment. The Dow Jones Industrial Average and S&P 500 both retreated on Monday from their record highs last week, snapping a six-week winning streak.
Rising Treasury yields and concerns about high stock valuations ahead of earnings reports from major companies added to the cautious mood.
See also: Nikkei Rises Following Wall Street Gains
Given the current landscape, we expect volatility in the Nikkei to continue. If the LDP fails to secure a majority, there could be further downward pressure, especially if policy uncertainty intensifies.
However, should the party secure enough votes to form a stable coalition, the market could see a short-term relief rally.
Overall, political risks coupled with broader global factors, like rising US yields and earnings reports from major companies, may continue to pressure Japanese equities in the short term.
Traders are likely to remain cautious, keeping a close eye on both the domestic election results and international market developments.
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