Markets Steady as Yen Gains Amid Japanese Election Outcome

European shares remained stable on Monday, while the yen strengthened as investors reacted calmly to the recent defeat of Japan’s ruling coalition in upper house elections. The outcome has raised questions about Prime Minister Shigeru Ishiba‘s political stability, but market attention has shifted towards upcoming earnings reports from major U.S. technology companies and the European Central Bank’s policy meeting later this week.

The pan-European benchmark STOXX 600 index was flat, and the UK’s blue-chip FTSE 100 saw a slight increase of 0.1 percent. The euro edged up by 0.1 percent to $1.163950. Market analysts noted that the ruling coalition’s loss in the elections might affect Ishiba’s authority, especially as a key deadline for U.S. tariffs approaches. Despite this, Ishiba has pledged to remain in power, and a market holiday limited immediate reactions.

The yen traded at 148.065 against the dollar, marking a 0.5 percent increase, and rose 0.3 percent against the euro. According to Tsuyoshi Ueno, chief economist at Nissay Research Institute, the election results were anticipated, and the political instability could undermine Japan’s reliability in trade negotiations with the United States. Ueno emphasized that if the government remains weak, it would hinder any potential interest rate hikes by the Bank of Japan.

Despite a market holiday in Japan, futures traded at 39,885, reflecting a rise from the cash close of 39,819. In the U.S., futures for the S&P 500 increased by 0.2 percent, while Nasdaq futures rose by 0.3 percent. Investors are looking forward to earnings reports from major technology firms, including Alphabet, Tesla, and IBM. Michael Brown, senior research strategist at Pepperstone, stated, “They are going to be key for sentiment because frankly there’s not a lot else to drive things.”

In the defense sector, companies like RTX, Lockheed Martin, and General Dynamics are expected to report positive results, benefiting from increased global government spending. The S&P 500 aerospace and defense sector has surged 30 percent this year, with European defense stocks achieving record highs.

In technology news, Microsoft alerted users about “active attacks” targeting server software used by government agencies and businesses, urging them to download security updates promptly.

As the European Central Bank prepares for its upcoming meeting, euro zone government bond yields have eased. Analysts anticipate that the bank will maintain interest rates at 2 percent, following a series of cuts. In a note, analysts at TD Securities expressed expectations that the press conference would emphasize ongoing uncertainties and the necessity of waiting for tariff negotiations to conclude before determining the next steps.

The euro experienced a slight decrease of 0.5 percent last week, moving away from a recent near four-year high of $1.1830, while the dollar index dropped marginally to 98.306. U.S. Treasury yields fell, with the yield on the benchmark 10-year note down 4.5 basis points at 4.286 percent. This decline followed comments from Federal Reserve Governor Christopher Waller advocating for a rate cut this month. Most Fed officials, including Chair Jerome Powell, have suggested pausing to assess the inflationary impacts of tariffs, with market expectations for a rate cut in September at 61 percent and 80 percent for October.

The discussion surrounding potential political appointees at the Fed, who may pursue aggressive easing policies, continues to keep investors cautious.

In commodity markets, gold prices increased by 0.5 percent to $3,365 per ounce, while platinum reached its highest price since August 2014 last week. Oil prices are fluctuating between the prospect of increased supply from OPEC+ and the potential for European Union sanctions against Russia over its ongoing conflict in Ukraine. Brent crude oil saw a modest rise of 0.1 percent to $69.32 per barrel.