The Japanese stock market has experienced a consecutive three-day rise, possibly driven by the yen's depreciation. UBS analysts suggest this reflects market sentiment that the Bank of Japan is unlikely to raise policy rates amidst political instability.
On a recent Monday, Japan's ruling coalition, led by the Liberal Democratic Party and Komeito, lost its majority in the House of Representatives, marking a significant shift in the country's political landscape for the first time since 2012. However, UBS analysts argue that this doesn't necessarily mean a change in government.
With former Prime Minister Yoshihiko Noda expressing interest in contesting the leadership, the election could impact the stock market. Despite the loss of the majority, Prime Minister Shigeru Ishiba is expected to remain in office and form a minority government, potentially continuing with expansionary fiscal policies to support households.
Should Noda lead a new government, tax increases, including higher income and corporate taxes, might be implemented, potentially creating a negative impact on the stock market. Additionally, a CDP-led government could challenge the Bank of Japan by proposing new inflation targets and reallocating its ETF holdings.
UBS predicts a rate hike by the Bank of Japan in December, as political uncertainties may resolve by then, reducing the likelihood of excessive yen depreciation.
Investors should approach the market cautiously, as this analysis does not constitute personal investment advice and does not account for individual circumstances.
