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Investing.com-- Japan’s ruling coalition’s loss in the Upper House election is unlikely to disrupt markets significantly, analysts at BofA Securities and Morgan Stanley (NYSE:MS) said, though fiscal risks and political stability remain key watchpoints.
BofA strategists noted the Liberal Democratic Party (LDP)-Komeito coalition’s defeat was anticipated, with investors viewing it as a "buy Japan" opportunity rather than a sell-off trigger.
They expect limited market impact unless opposition parties form a coalition government, which they deem unlikely due to policy gaps.
Fiscal expansion and a weak yen could benefit exporters and domestic-demand sectors like retail, while delays in Bank of Japan rate hikes may weigh on financial stocks, BofA said.
"The stock market will likely take a positive view of prospects for the ruling coalition to shift to a more expansionary fiscal stance that incorporates opposition parties’ policies," BofA analysts wrote.
Morgan Stanley analysts said that North American investors were unfazed by the election outcome, which aligned with expectations. Defense stocks remained bullish due to expected U.S.-Japan collaboration in shipbuilding, while auto and machinery sectors faced tariff risks, they added.
"Should the administration falter, expectations for fiscal expansion under a new government could drive interest rate hikes and a rally in bank stocks," Morgan Stanley analysts wrote.
Both firms, in separate research notes, highlighted Prime Minister Shigeru Ishiba’s pledge to stay in office as a stabilizing factor. Succession risks, including potential candidates like Shinjiro Koizumi, are in focus, analysts added.