The financial markets are experiencing significant volatility, particularly in certain assets as trading commenced on Monday (July 21, 2025). This follows the outcomes of the recent elections in Japan, which revealed a setback for the coalition of Prime Minister Shigeru Ishiba over the weekend.
Japan’s electoral system operates on a three-year cycle, with 124 out of 248 seats up for grabs. To regain a parliamentary majority, the LDP-Komeito coalition needed to secure 50 seats but managed to obtain only 47.
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Consequently, the coalition now holds a total of 122 out of 248 seats, thus losing their majority in parliament. This election outcome represents the worst performance for the LDP since 1955, leading to an atmosphere of political instability in Japan. As the world’s fourth-largest economy, the implications of this election result are significantly impacting the financial markets.
GOLD
The price of Gold (XAUUSD) dropped to $3,344.55 per troy ounce at the start of the day before rebounding to $3,362.90 per troy ounce.
The political uncertainty in Japan has heightened the appeal of Gold as a safe haven asset. Nonetheless, market participants are closely monitoring the situation as PM Ishiba confirmed he intends to continue his leadership, especially with Japan engaged in ongoing trade negotiations with the United States.
Any change in leadership could complicate matters further, and this sentiment is likely to influence Gold prices during the European trading session.
OIL
Oil prices (CLS10) fluctuated significantly last Friday due to ongoing concerns over tight global supplies, generating positive sentiment. Conversely, President Donald Trump’s decision to postpone the implementation of sanctions on Russia for 50 days contributed negative sentiment towards Oil.
Additionally, the European Union imposed fresh sanctions on Russia’s energy sector, targeting Nayara Energy in India, which has been exporting Oil refining products from Russia. These new sanctions from the EU could potentially offer positive sentiment for Oil in the European session.
EURUSD
The EURUSD pair recorded an increase of 315 points (31.5 pips) reaching 1.16266 during last Friday’s trading; however, it has mainly been moving sideways throughout the week. The pair also remains close to a three-week low.
This movement indicates that traders are waiting for the latest updates concerning trade negotiations between the US and the EU, which have yet to yield any significant advancements. Reports suggest that the EU is preparing a plan to increase tariffs on American products in anticipation of a potential failure in reaching an agreement before August 1.
Such developments lend a negative sentiment to the EURUSD during the European trading session.
GBPUSD
The GBPUSD pair remained unchanged over two trading days, closing Friday’s session at 1.34087, after peaking at 1.34749 earlier.
The struggles of GBPUSD to gain strength suggest that market participants anticipate the Bank of England (BoE) may consider lowering interest rates soon, following signs of economic slowdown in the UK during the second quarter of 2025.
This negative sentiment is likely to continue influencing GBPUSD trading in the European session.
USDJPY
The political climate in Japan has resulted in significant volatility for USDJPY, which has fluctuated between 147.854 and 148.665. PM Ishiba’s commitment to continue his administration has lent strength to the yen during today’s trading.
With Japan on holiday, the yen’s movements may remain somewhat limited. Nevertheless, with Ishiba extending his leadership, there is potential for the yen to continue its strength, which could place downward pressure on USDJPY.
Nasdaq
The Nasdaq index reached an all-time high of 23,318 during trading last Friday before reversing to close slightly lower at 23,224.
Robust economic data from the US and optimistic expectations regarding corporate earnings reports provided positive momentum for the Nasdaq. This sentiment will likely continue to affect Nasdaq trading in the European session.
