Japan’s stock market rallied Monday as the yen slipped to a three-month low following news that Prime Minister Shigeru Ishiba’s ruling coalition lost a parliamentary majority in the nation’s election. The ruling Liberal Democratic Party (LDP) and its coalition partner Komeito secured 215 out of 465 seats — falling short of the 233 needed to win power in Japan’s lower house. The outcome of this snap election signals that Ishiba may face difficulties in getting his party’s policies passed in parliament. The LDP may have to form a new coalition with a third party. Such a phenomenon raises uncertainties as “we may not know how this new government is going to look like, who the potential coalition partners [are and what the] coalition agreements are going to be,” Izumi Devalier, chief Japan economist at Bank of America, told CNBC’s “Squawk Box Asia” on Monday. “This is certainly, I would argue, not a positive for yen assets,” she added. Japan’s benchmark index Nikkei 225 closed up 1.82% on Monday, while the Topix index gained 1.5%. Overall, the Nikkei 225 — which includes the top 225 companies on the Tokyo Stock Exchange — is up around 15% since the start of the year, while the Topix index is 11.7% higher. Meanwhile, the yen declined throughout the morning session , slumping as much as 153.885 against the dollar for a low not seen since late July. A ‘murky’ outcome Neuberger Berman’s Kei Okamura believes the current rally is more short term, since Japanese equities were “under pressure” in the “last eight or nine trading sessions.” “Given the fact that the outcome that we saw … was not on the sort of worst case scenario, then I think quite a few investors felt that this is possibly not such a bad outcome as feared,” he told CNBC’s “Street Signs Asia” on Monday. Okamura — who is a senior vice president and portfolio manager at the investment management firm — believes several uncertainties persist for Japan in the medium to longer term “The ruling coalition will likely have to come out with some form of new measures with other parties that could potentially make for a very murky outcome going forward,” he said. These include “more fiscal stimulus measures,” and a cut in tax rates, Okamura added. In the near term, he sees uncertainties in the current direction of yen — due in large part to the Bank of Japan’s “steady” stance and the possibility of the U.S. Federal Reserve not cutting rates at its upcoming meetings. “If you look at the mid to long term sort of trajectory, our view is, is that the yen will appreciate just given the fact that the Fed will continue to cut rates while the while Japan will likely have to increase going forward,” Okamura said. His comments come amid expectations of the Bank of Japan leaving its rates unchanged at its meeting on Oct. 31. ‘High-quality companies’ Okamura is now betting on “higher quality companies with good pricing power.” Small- and mid-cap stocks look most attractive to him from a fundamentals and valuations perspective given the resilience of Japan’s domestic economy and the potential for the yen to appreciate. Still, he remains invested in “good quality companies across the board” — including large-cap stocks. His top picks include conglomerates Hitachi and Mitsubishi Logistics , insurer Tokyo Marine Holdings , hotel and golf course construction player Resorttrust and automotive auctioneer USS . Okamura describes the stocks as “very good quality companies [that] are market leaders in their respective fields.” The five are also among the top holdings in the 19.1 billion yen (124.6 million) Japan Equity Engagement Fund . As of Oct. 28, the fund had year-to-date returns of 20.17%, slightly underperforming the 21.09% registered by its benchmark MSCI Japan Small Cap Index. Touching on USS, he said the company has over 50% market share in the second-hand car auction scene. This makes the firm Japan’s “biggest operator” in the sector, given them “pricing power — which we think is absolutely critical,” he said. Meanwhile, Okamura describes Tokyo Marine as the “kind of company [that] will likely do well irrespective of the political uncertainties.” This is as the insurer is now seeing growth in its “P and L” and has good presence in Japan and the U.S. “We are expecting the insurer to continue to unwind across shareholdings, invest those proceeds into the business, but also buy back stock. That would bode well for, basically, the balance sheet improvement,” he added.