Japan's central bank to remain undeterred on rate hikes despite LDP's electoral shock, analysts say
Japan's longtime ruling Liberal Democratic Party may have suffered an election shock, but analysts said that's unlikely to deter the Bank of Japan from its interest rate hike cycle.
In Sunday's elections, the LDP lost its majority in Japan's lower house for the first time since 2009. Besides its junior coalition partner Komeito, the LDP will need to work with other parties to form a government. A minority government could also be on the cards.
The result was a blow to the LDP, David Boling, director of Japan and Asian trade at Eurasia Group, told CNBC's "Squawk Box Asia."
"The LDP got bruised. They got a black eye. They got a bloody nose, but they're still standing, and so is Ishiba, and they are still the biggest party in the lower house," he said on Monday.
As such, the LDP will still be in the "driving seat" when it comes to putting together a coalition government, which he said is good news.
Prime Minister Shigeru Ishiba signaled his intention to stay on as prime minister despite the loss, saying "We will humbly and solemnly accept the harsh judgment," according to a Google translation.
The LDP website also said in a release that Ishiba also indicated his intention to maintain a government centered on the LDP.
The political turmoil comes ahead of a Bank of Japan meeting this week. Roughly 86% of economists polled by Reuters expect the central bank to leave its rates unchanged when it announces its decision Thursday.
Izumi Devalier, chief Japan economist at Bank of America, said that the odds that the BOJ will hike this week is "probably close to zero."
When asked if the election result could derail the BOJ's hiking cycle, Devalier explained that while political uncertainty and instability could delay rate hikes, she added the