Core Viewpoint - The Tokyo financial market is experiencing volatility due to the unexpected announcement by the Komeito party to exit the ruling coalition with the Liberal Democratic Party (LDP), leading to concerns about political uncertainty and potential market instability [1][2]. Market Reaction - Following the Komeito party's announcement, the Tokyo market saw significant fluctuations, with nearly 90% of stocks on the Tokyo Stock Exchange declining, and the Nikkei 225 index dropping by 491.64 points, closing lower than the previous trading day [2][3]. - The yield on newly issued 10-year government bonds rose to 1.7%, marking a 0.01 percentage point increase and the highest level in 17 years, indicating investor skepticism towards the government's fiscal policies [2][3]. Political Implications - Analysts suggest that the dissolution of the ruling coalition could lead to a "black swan" event, where opposition parties might form a coalition government, potentially preventing the LDP's candidate, Sanae Takaichi, from becoming Prime Minister [1][3]. - The political landscape is expected to remain volatile, with further market fluctuations anticipated as the implications of the coalition's breakup unfold [3]. Economic Policy Outlook - Despite the political turmoil, Takaichi's economic policies are still under scrutiny, with a focus on aggressive fiscal expansion to stimulate growth. She aims to activate all remaining growth levers in the Japanese economy [4][5]. - Takaichi is seen as a proponent of "Abenomics 2.0," emphasizing monetary easing, active fiscal policy, and structural reforms, although her ability to implement these policies may be hindered by a lack of majority support in the Diet [4][5]. Economic Challenges - The incoming Prime Minister will face significant challenges, including rising living costs, public dissatisfaction, and pressures from the U.S. regarding increased investments [6][7]. - Japan's economy is grappling with persistent inflation, increasing public debt, and an aging population, all of which complicate the economic recovery efforts [6][7].

Economic Overview - The U.S. government shutdown began on October 1, with limited short-term economic impact expected, as most losses are projected to be recovered post-shutdown[1] - The unemployment rate in the Eurozone rose to 6.3% in September, higher than the expected 6.2%[25] - Japan's new Prime Minister, Kishi Sanae, is expected to continue a loose fiscal and monetary policy, impacting market dynamics positively[28] Employment Data - In September, ADP reported a decrease of 32,000 jobs, the largest drop since March 2023, significantly below the expected increase of 52,000[6] - Revelio Labs reported an increase of 60,000 jobs in September, slightly above market expectations, indicating a mixed employment landscape[6] Market Reactions - U.S. stock markets saw gains, with the S&P 500 up 0.77% and the Nasdaq up 1.24% from September 30 to October 6[2] - The Japanese Nikkei 225 index surged by 6.70% following the election of Kishi Sanae, reflecting investor optimism[2] Central Bank Policies - The Federal Reserve's interest rate cut expectations have increased, with market probabilities for a 25 basis point cut in October and December rising significantly[23] - The European Central Bank (ECB) remains committed to maintaining current interest rates despite rising unemployment and inflation data[25] Commodity Prices - Precious metals saw significant price increases, with gold rising by 2.80% and silver by 3.95% during the same period[2] - Oil prices experienced a slight decline of 1.09%, while natural gas prices increased by 1.63%[2] Risks and Uncertainties - There is a risk of an unexpected degree of economic recession overseas, which could impact global markets[2]