The Japanese Liberal Democratic Party suffered a devastating defeat in the Lower House election, leading to the depreciation of the Japanese Yen to a three-year low.

Japanese Prime Minister Fumio Kishida, who took office in early October, called for early elections, but the outcome backfired as the ruling coalition in Japan failed to secure a majority in the parliament for the first time since 2009, leading to a period of political instability in Japan. The Japanese yen fell to a three-month low, while the Japanese stock market rose on expectations that the coalition government would implement a large-scale spending plan to boost the economy.

Coalition Suffers Major Setback, Casting Political Uncertainty Over Japan's Future

According to NHK's statistics, the Liberal Democratic Party and Komeito together secured 215 seats, falling short of the 233 seats needed for a majority in the House of Representatives, with the remaining 250 seats divided among six other parties.

The political uncertainty may complicate the outlook for the Bank of Japan. The Bank of Japan is struggling to find the right timing for another rate hike, with the market generally expecting the BOJ to keep rates unchanged at the meeting on October 31.

Rate Hike by Bank of Japan in December?

According to a report from Bloomberg, Takeshi Minami, Chief Economist at Norinchukin Research Institute, believes that a rate hike in December by the Bank of Japan is still the main expectation in the market:

With the devastating defeat of the Liberal Democratic Party and time remaining until December, the challenge lies in the BOJ's statement that it will not hike rates during market turmoil. The impact of the U.S. presidential election is still to be observed, increasing market uncertainty.

Will the Bank of Japan's hawkish rate hike to 0.25% mark the end of the cheap yen?

Yen Continues to Depreciate

The USD/JPY has risen for four consecutive weeks, currently trading at 153.88. Although it is still far from the July peak of 161.95, Atsushi Mimura, a Japanese foreign exchange official, warned last week that he is closely monitoring the exchange rate trend, further increasing the risk of Japan returning to the market to protect the yen.

Traders are considering the political uncertainty and the uncertainty facing the Bank of Japan's rate hike, causing the yen to depreciate by over 6% this month, making it the worst-performing among G10 currencies. The market's expectation of a return to Trump trade has also boosted the strength of the dollar, further driving the yen's depreciation.

With the increasing likelihood of a Trump victory, what is prevailing in the market? Does this also involve Bitcoin in the Trump trade?