(Bloomberg) -- The yen strengthened versus the dollar on Monday after Japan’s Prime Minister Shigeru Ishiba said he would carry on as leader after the ruling coalition lost its majority in the upper house election. Japanese stock futures were little changed.

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Japan’s currency, which had declined in the two weeks leading up to Sunday’s vote, gained about 0.4% to trade at 148.16 versus the greenback at 4:20 p.m. in Tokyo. With the stock and bond markets closed for a national holiday in Japan, the currency is the key asset to watch for investors.

Heading into the election, even risk-taking hedge funds were last week holding off on Japanese assets as the outlook for the Ishiba’s government deteriorated. In the currency derivatives markets they turned bearish on the yen for the first time in nearly four months, according to Commodity Futures Trading Commission data released on Friday for the week that ended on July 15.

“Some investors had positioned for a larger setback for the coalition and even anticipated Ishiba’s resignation,” said Akira Moroga, chief market strategist at Aozora Bank Ltd. “The unwinding of such positions, combined with relief that a political risk event has passed, contributed to the initial yen rebound.”

Moroga expects the yen to trade in a 145–150 range this week.

The ruling Liberal Democratic Party along with longtime partner Komeito lost its majority in the chamber, public broadcaster NHK reported. It’s the first time since 1955 that a leader from the storied Japanese party will govern the country without a majority in at least one of the legislative bodies.

Japan is headed into a period of political uncertainty as Ishiba tries to govern with some support from the opposition and “uncertainty usually tends to favor the yen, at least initially,” said Rodrigo Catril, a currency strategist at National Australia Bank in Sydney. “Overall, the election outcome is not good news for Japanese assets and we would look to fade yen strength.”

Traders had been on tenterhooks for weeks ahead of the election, with concerns that a poor showing by Ishiba’s party would open the door to more government spending and tax cuts. That’s put the yen under pressure and sent Japanese government bond yields to multi-year highs.

What Bloomberg Strategists say:

“FX trading in the Asian session will be impacted by Japan’s public holiday, but there are likely underlying dollar bids given that positions were being reduced amid choppy swings for most of last week. ... That suggests it won’t be long before USD/JPY is back on a path toward 150.”

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— Mark Cranfield, MLIV Strategist. Read more on MLIV.

The yen has also experienced increased volatility since US President Donald Trump’s first tariff announcement in April. The uncertainty over trade hasn’t lifted with the election as Japan still faces an Aug. 1 tariff deadline and negotiations on a deal with the US have yielded little progress.

“This fresh wave of volatility is poised to ramp up pressure on the yen at the worst possible timing, as Tokyo races toward the critical Aug. 1 trade deadline with the US,” said Hebe Chen, an analyst at at Vantage Markets in Sydney. “For Japanese equities, the picture is more complex. A weaker yen may offer short-term support to exporters, but the deepening political noise threatens to erode broader investor confidence.”

Nikkei 225 Stock Average futures expiring in September were little changed.

--With assistance from Matthew Burgess and Michael G. Wilson.

(Adjusts headline and wording in first two paragraphs.)

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