Japan’s upper house election results dealt a big blow to the ruling coalition, weakening Prime Minister Shigeru Ishiba’s power. The yen rose and Nikkei futures showed investors had already priced in the outcome, affecting the Japanese currency and government bonds. Analysts predict policy paralysis and a larger fiscal deficit.

The ruling coalition lost control of the upper house, further complicating Ishiba’s grip on power. With a looming tariff deadline with the United States, the election outcome poses challenges for Japan, which is already facing economic uncertainties.

Investors anticipate the ruling coalition’s next steps as they navigate a minority government or seek new partners. The Democratic Party for the People and opposition parties are pressing for policy changes, including consumption tax cuts and monetary easing.

Amidst the political uncertainty, speculation remains about Ishiba’s future and potential replacements within the Liberal Democratic Party. Analysts predict potential triggers for foreign investors to sell Japanese shares and the yen, particularly if there are leadership changes or fiscal stimulus measures.

Barclays analysts estimate the impact of a potential sales tax cut on Japan’s financial markets, predicting an increase in the 30-year yield. The yen has experienced volatility due to political uncertainty, tariff negotiations, and the Bank of Japan’s policies, impacting its value against the dollar.

Despite the challenges, the Nikkei 225 benchmark has shown resilience, with a significant increase since April amidst global tariff announcements. The Japanese economy faces uncertainties as it navigates policy changes and potential fiscal stimulus measures in the aftermath of the election.

Read more at Yahoo Finance: Japan ruling party’s election loss is in the price, investors say