Yen Holds Steady as Japan Navigates Political Shake-Up, Global Markets Eye Trade Tensions and Tech Earnings

Japan’s financial markets showed only mild reactions following a political shift in the country’s upper house elections. Despite the ruling coalition losing its majority by three seats, Prime Minister Shigeru Ishiba remains in power for now. With Japanese markets closed for the Marine Day holiday, trading activity was thin. The yen ticked up slightly against the dollar and euro, while Nikkei futures remained stable in overseas markets.

The political outcome means Ishiba will need to seek support from smaller parties to pass key legislation, potentially complicating governance. However, markets appear to be pricing in stability, interpreting the results as a relief rather than a disruption. Investors had already anticipated a possible political shake-up, and reactions suggest a “sell the rumor, buy the fact” mentality.

At the international level, Japan’s trade negotiations with the U.S. remain deadlocked. A major sticking point is agricultural imports, which are politically sensitive in Japan. With President Donald Trump’s self-imposed deadline of August 1 looming, uncertainty continues. Meanwhile, the European Union is facing a similar challenge, with Brussels preparing retaliatory tariffs even as talks proceed.

The EU hopes to gain leverage by engaging with China, with its top leadership set to meet President Xi Jinping later this week. Speculation is also mounting over a potential Trump-Xi summit later this year. The U.S. has recently eased chip exports to China, possibly in exchange for renewed rare earth shipments, showing early signs of pragmatic compromise amid tensions.

Markets remain cautiously optimistic, believing the worst of tariff wars might be avoided. Much of this hope hinges on corporate earnings. Major U.S. companies like Alphabet, Tesla, Lockheed Martin, and General Dynamics are expected to post strong results, with defense firms likely to benefit from increased global military spending. Investors are watching closely, as these earnings could stabilize sentiment in a tense trade and political climate.

Source: Reuters