On Friday (October 25th), the Japanese Nikkei index fell for the second consecutive week, as investors weighed the risk prospects ahead of domestic elections that could result in the ruling party losing its majority.

By the close, the Nikkei index was down 0.6%, at 37,913.92 points, with a weekly decline of 2.7%. The broader Topix index fell 0.7%, to 2,618.32 points.

The Japanese Nikkei index rose after falling for three consecutive days.

All primary market industry categories fell, with shipping, rubber products, and petroleum and coal products stocks leading the decline. The shipping sector experienced the largest drop, falling by 3.6%.

In terms of major stocks, chip testing equipment manufacturer Advantest fell by 2.9%, exerting the greatest drag on the Nikkei index. Fast Retailing, the parent company of Uniqlo, fell by 0.7%, human resources company Recruit Holdings fell by 2.4%, and gaming company Konami Group fell by 2.8%.

The largest decline in the Nikkei index was Sumitomo Pharma, down by 6.3%; followed by shipping company Kawasaki Kisen, down by 4.3%; and Nippon Yusen Kaisha, down by 3.8%.

Fundamentally, the US long-term interest rate hike paused and the Japanese Finance Minister warned of a significant depreciation of the yen recently, causing the dollar/yen to briefly fall to the 151 range in Tokyo.

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Analysts pointed out that the yen attracted buying due to market speculation that the Bank of Japan might convey hawkish signals after next week's policy meeting.

Due to the market's risk-averse sentiment ahead of the Japanese House of Representatives election on Sunday, stocks were sold off throughout the day, with recent media reports showing that the ruling party might struggle to maintain a strong majority in the House of Representatives.

The market has been on edge as the latest opinion polls indicate that voters might end the LDP's decade-long dominance, potentially forcing it into a power-sharing situation, thereby weakening Japan's leadership."There is a certain cautious sentiment in the election, and overall, investors seem to be choosing not to take large positions for the time being," said Koichi Fujishiro, a senior economist at Dai-ichi Life Research Institute.

However, Fujishiro added that some market participants seem to be more inclined to support a weaker political base for Prime Minister Shinzo Abe, as his emphasis on fiscal reconstruction is considered to pose some concerns for the stock market.

Friday was the last trading day before the election results were announced, with investors adjusting their positions. Out of the Nikkei 225 index components, 176 stocks fell, only 48 rose, and 1 was suspended.

"This is basically a 'sell Japan' scenario," said Naka Matsuzawa, Chief Macro Strategist at Nomura Securities, as investors are considering how this outcome will affect the prospects for fiscal and monetary policy.

Wei Li, Portfolio Manager of Multi-Asset Quantitative Solutions at BNP Paribas Asset Management, said that if the Liberal Democratic Party-Komeito alliance secures a simple majority, the Japanese market may respond positively. However, failure to secure a majority could exacerbate volatility.

She pointed out that "the magnitude of the market reaction depends on the gap in the number of seats from 233. Losing an absolute majority could trigger more serious turmoil."