Image shows Japanese Yen and U.S. dollar currency notes · Reuters
Investors breathed a cautious sigh of relief after Japan’s upper house election, as the outcome wasn’t as bad as feared. Japanese markets remained shut on Monday due to Marine Day, keeping overall trading volumes low. Still, the yen nudged slightly higher against both the U.S. dollar and euro. In the meantime, Nikkei futures in Chicago held steady, closely mirroring Friday’s closing levels in Tokyo.
Over in the U.S., Wall Street futures crept up modestly, while Europe’s futures dipped just a little, suggesting a calm but watchful start to the week in major financial centers.
Japan’s Political Shake-Up and What It Means
Despite the ruling coalition losing three seats and control of the upper house, Prime Minister Shigeru Ishiba isn't in immediate danger. However, to get anything passed, he now depends on smaller political parties. That may prove challenging, especially when it comes to high-stakes topics like trade.
Japan is still stuck in a tough negotiation with the U.S. over tariffs, particularly those tied to agriculture—a sensitive topic both economically and culturally. With U.S. President Donald Trump’s August 1 deadline quickly approaching, the pressure is mounting for a breakthrough.
EU Faces Similar Trade Trouble
The European Union finds itself in a similar position. While U.S. Commerce Secretary Howard Lutnick has expressed confidence in reaching an agreement, the EU is already drafting a list of American goods that could face retaliatory tariffs.
In an effort to gain leverage, EU Commission President Ursula von der Leyen and Council President Antonio Costa are scheduled to meet with Chinese President Xi Jinping later this week. The EU hopes cooperation with China might help shift negotiations with the U.S. in its favour.
U.S.-China Signals: Some Progress, Some Uncertainty
There are signs of progress between the U.S. and China. Reports suggest President Trump and Xi may meet in either October or November. Meanwhile, the U.S. has reportedly relaxed its stance on exporting computer chips to China—apparently in exchange for China resuming shipments of rare earth minerals, crucial for tech and defence industries.
Markets Betting on Calm, But Risks Remain
For now, markets seem to believe a major tariff blow-up will be avoided. Still, experts warn that if all proposed tariffs take effect, the effective rate might surpass levels seen during the Great Depression—when high trade barriers made the global slump even worse.
Investors are leaning on corporate earnings to keep sentiment afloat. Tech giants like Alphabet and Tesla will report results this week. Defence contractors Lockheed Martin and General Dynamics will also release earnings, likely reflecting a boost from increased global military spending.
Monday’s Market Calendar Is Bare—But Trump Isn’t
Monday’s schedule is light, offering little in terms of official market-moving news. Yet, as always, market watchers will keep an eye on Trump’s social media and speeches for any sudden shifts in tone or new announcements that could shake investor confidence.
