Macro news
The Japanese yen weakened notably after Prime Minister Ishiba’s resignation, sliding 0.5% against the US dollar. The currency also touched multi-year lows against the euro and sterling, reflecting investor concern over Japan’s mounting political uncertainty. The sudden leadership vacuum has added to pressures already weighing on the yen, underscoring the fragility of sentiment toward Japan’s economic outlook.
The Bank of Japan’s (BoJ) future policy direction has become less clear in light of these developments. Market participants worry that a new prime minister may support a looser monetary stance, potentially undoing recent efforts to tighten conditions. Former foreign minister Toshimitsu Motegi has already announced his candidacy, making him the first contender in what is expected to be a closely watched race for leadership.
Japanese equities, however, reacted positively to the weaker currency. The softer yen boosted the outlook for exporters, helping stocks move higher, while government bonds remained largely stable. Super-long bond yields, meanwhile, continued to hover near record highs, a sign that investors remain cautious about long-term fiscal and monetary risks.
Across Europe, political turbulence deepened in France. Prime Minister François Bayrou is widely expected to lose a confidence vote, a setback that could strain both government bonds and the country’s credit ratings. The prospect of further instability adds to the already complex political backdrop facing European markets.
In the United States, the dollar stayed under pressure following a weaker-than-expected jobs report. Futures markets now fully price in a Federal Reserve (Fed) rate cut in September, with traders assigning a 10% probability to a larger 50-basis-point move. Attention is now firmly on Thursday’s US consumer price index (CPI) release, which investors view as the decisive test for whether the Fed will deliver a standard or more aggressive cut later this month.
S&P 500 hovers below record highs
The S&P 500 is trading back in the 6,500 region, having come off Friday’s 6,532 record high following Friday’s substantially weaker-than-expected US non-farm payrolls (NFPs).
The late August high at 6,508 may act as resistance and the mid-August high at 6,481 as minor support.
A rise above last week’s all-time high at 6,532 would likely target the 6,600 region whereas a fall through 6,481 Friday’s low at 6,444. Failure there would have at least short-term bearish implications with the April-to-September uptrend line at 6,423 being eyed.