Japanese Senate election triggers a sell-off in Japanese stocks, Goldman Sachs: Hedge funds withdraw funds at the fastest pace in 10 weeks in a single week.

Goldman Sachs pointed out in a report that the Japanese Senate elections were held last Sunday, and global hedge funds sold Japanese stocks at an unprecedented speed last week, with the intensity being the highest in nearly two and a half months. As anticipated by investors who sold Japanese bonds and stocks before the election, last Sunday's election dealt a heavy blow to Japanese Prime Minister Shizo Abe and his ruling coalition. Since the beginning of this month, the benchmark Nikkei 225 index and the Topix index in Japan have fallen by 1.7% and 0.6% respectively, going against the rising trend in other stock markets. Both indexes closed lower last Friday. Although Shizo Abe pledged to remain as the leader of the Liberal Democratic Party to complete trade tariff negotiations with the United States, the results of last Sunday's election further weakened his position in power. According to a report released by Goldman Sachs brokerage department last Friday, hedge funds sold Japanese stocks from July 11 to 17, mainly due to an increase in short positions, while long positions also decreased to some extent, but relatively moderately. The Japanese stock market was closed on Monday due to a holiday, but the yen exchange rate strengthened and Nikkei futures slightly rose, indicating that the election results seemed to have been anticipated by the market and the related effects have been absorbed. Since U.S. President Donald Trump announced radical tariff measures in April, Japan's yen volatility has continued to rise. The Senate election did not bring any help in eliminating trade uncertainties, and Japan is still facing the August 1 deadline for Trump's tariff policy, where the U.S. government will impose up to 25% high tariffs on Japan starting from August 1, and the trade agreement negotiations between the Abe government and the U.S. have made little progress. With reports that Shizo Abe, the current Prime Minister belonging to the Liberal Democratic Party, is attempting to continue in power with support from a part of the opposition party, Japan is heading towards a period of high political and economic uncertainty. Rodrigo Catril, a foreign exchange strategist at the National Australia Bank in Sydney, stated, "Uncertainty usually benefits the yen at least in the short term. Overall, the election results are not favorable for Japanese assets in the long term, and we will consider selling the yen on strength." Goldman Sachs stated that overall, hedge funds still have a higher proportion of Japanese stocks in their holdings compared to the weight of the Japanese stock market in the MSCI Global Index by 0.6%. Analysts pointed out that the increased uncertainty in the future of the Prime Minister could lead to "policy paralysis" and further widen the fiscal deficit. Analysts at Mitsubishi UFJ Financial Group stated in a report, "This is the first time since 1955 that a government led by the Liberal Democratic Party has lost the majority in both houses of Parliament, which could exacerbate political turmoil in Japan."