Japanese Ruling Party Suffers Defeat

Markets shrugged off the results of Sunday’s Japanese elections. The ruling Liberal Democratic Party suffered a major defeat in Sunday’s elections. Takeshi Minami of the Norinchukin Research Institute stated, “The timing is not surprising and I don’t think that this will have a major impact on the market. The market has already factored in a defeat for the LDP. The focus is on how the (opposition) Democratic Party will manage politics. Foreign investors don’t have a clear idea about the Democrats.”

Yen Steady Against Major Currencies

The yen held steady against other major currencies and forex traders expect the yen to take its cue from equity markets. An unnamed trader from a European bank said, “Equities fell globally last week with U.S. shares falling for the fourth straight week, and the key is whether that will continue.” Risk aversion has dominated forex markets as investors remain concerned about second quarter corporate earnings and the health of the financial industry. The yen rose on Friday posting its biggest weekly gain against the US dollar since October.

Declining US Consumer Sentiment

A report showing declining US consumer sentiment in early July raised risk aversion benefiting both the dollar and the yen. Also boosting the dollar and yen was last week decline in equities and oil prices and forex investor perception that earlier economic optimism may have been premature. Dismal employment from the US triggered a return to risk aversion last week.

Pound Pressured by Times Report

The British pound was hammered by a report in the Sunday Times which said the banking giant Lloyd’s may post losses of 13 billion pounds. ($20.9 billion USD) Also affecting currency exchange rates was a Wall Street Journal report that American Airlines and Delta may file for chapter 11 bankruptcy. Yousuke Hosokawa of Chuo Mitsui Trust & Banking Co. stated, “The Times report rekindled concerns about the health of the financial system in Europe, which is believed to have a bigger exposure to non-performing loans than U.S. banks.”

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