NIKKEI225 Set to End Second Successive Week in the Red

Japanese stock market turns its attention to upcoming general elections and BoJ policy meeting.

Japanese stocks have taken a beating over the past two weeks, with the NIKKEI225 dropping 2.25% over that period. Investors have started to see risk from the general elections scheduled for this Sunday.

The recent surveys are pointing to the chance that the current Liberal Democratic Party leader and prime minister Ishiba may lose his outright majority. A recent poll by the Asahi newspaper showed that the current alliance between the LDP and Komeito may lose up to 50 seats.

The coalition currently holds 247 seats and would need at least 233 to maintain a majority. The Asahi poll reflects the ongoing mistrust of the LDP party, which has been wrought by an embezzlement scandal under the previous prime minister.

Bank of Japan Dovish to Hawkish

Next week the BoJ will hold its scheduled policy meeting on October 30 and 31. The market is beginning to expect a change from the dovish stance used to calm the markets. The latest comments and analysis indicate that the comments from the central bank will turn more hawkish.

There are signs that the USA has averted an economic slowdown after a slew of positive economic data. This could be the main talking point to lead their forward guidance. The BoJ and government officials have repeatedly stated that they will not tolerate a weak yen.

This I believe is more likely the reason to talk up the chance of further rate hikes. Of course, justified by the resilience of the local and global economy. The yen fell to 153.00 at one point to the dollar this week.

The central bank believes that inflation will settle below their 2% target by 2027. However. The economy is expected to recover. And there is also talk of a labor shortage as the economy recovers.

The labor shortage is expected to drive up salary hikes and may pile on price pressure as companies raise their prices. The central bank is expected to keep the main interest rate at 0.25%.