Key Takeaways
- Japan’s ruling coalition lost its majority – securing 122 seats out of the 125 needed – in the upper house elections on Sunday.
- But the margin of the loss is not as significant as signalled in the polls. PM Ishiba will remain as leader, and the coalition will continue as before.
- However, this is a setback for the PM as the coalition must now negotiate with opposition parties on a range of domestic and trade policies.
- Near-term political uncertainty may weigh on markets. Bond yields have proved sensitive to deficit concerns and the current political backdrop has greater fiscal easing risks.
- However, authorities have policy tools in place to calm bond markets. The structural backdrop continues to favour equities longer term.
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