The weekend election in Japan saw the Liberal Democratic Party (LDP) lose its ruling majority in parliament for the first time since 2009, ING’s FX analyst Chris Turner notes.  

Very little chance of a rate hike

“The vote seems to be a sign of diffidence from the electorate in response to a series of LDP funding scandals. While the LDP still commands the largest number of votes in parliament it now seems there will be a period of uncertainty as political parties try to horse-trade into power.”

“Presumably, the political uncertainty may weigh on corporate investment decisions, though some argue that whoever takes power, some increased fiscal stimulus could be coming and that's why the Nikkei 225 rallied 1.8% overnight. More immediate for the yen will be Thursday's Bank of Japan meeting.”

“The market sees very little chance of a rate hike, although at ING we are forecasting a hike in December. With volatility likely to rise further into next week (exactly the wrong conditions for the carry trade), we do not favour chasing USD/JPY higher from these levels. Let's see whether USD/JPY today closes above or stalls at some key resistance near 153.50.