Japan markets set for renewed ‘Takaichi trade’ after landslide election win
by Rocky Swift
TOKYO, Feb 8 (Reuters) – Japan’s volatile financial markets now have to fight hard as Prime Minister Sanae Takaichi, who gave the election mandate to re-inflation the economy after her decisive victory on Sunday, is in the driver’s seat.
The question for investors is whether Takaichi’s election momentum will encourage him to expand stimulus targets or give him political leeway to proceed more cautiously.
Since she began her ascent to become the country’s first female prime minister in October, the “Takaichi trade” has sent domestic stocks to record highs while causing a rapid sell-off in Japanese government bonds and the yen.
Voters braved heavy snowfalls in Tokyo and other parts of Japan to deliver what exit polls showed was the most decisive victory for Takaichi’s Liberal Democratic Party since 1996.
“The stock market really believes in Takaichi, so the big gain will be good news for stocks when markets open on Monday,” said Chris Scicluna, head of research at Daiwa Capital Markets Europe.
Takaichi, a fan of late prime minister Shinzo Abe’s “Abenomics” stimulus policies, has promised a proactive fiscal policy financed largely by bond issuance.
He came to office at a low point in the power and popularity of the Liberal Democratic Party, which ruled Japan for most of the post-World War II period, forcing him to negotiate more liberal fiscal platforms with opposition parties.
“The foundation of governance will become much more stable, making it easier to build expectations around economic policy moving forward,” said Kota Suzuki, a strategist at Nomura Asset Management. “There will be less pressure for gift-style fiscal expansion as there will no longer be a need to actively seek the cooperation of the opposition.”
Japan’s benchmark Nikkei 225 Index hit an all-time high of 54,782.83 on Tuesday, with polls already showing a decisive LDP win. The big winners of recent times include sectors such as defense. artificial intelligence and the chips selected by Takaichi for targeted investment.
But the prospect of more public spending has unsettled investors already worried about Japan’s debt burden, the largest in the developed world. These concerns came to a head on January 20, when rates on the JGB yield curve reached decades-long, even record, levels after Takaichi called for early elections and adopted the suspension of sales tax on food.
Yen was also punished; It has lost nearly 6% of its value against the dollar and fallen to record lows against the euro and Swiss franc since Takaichi was elected prime minister in October. Only threats to intervene in the common foreign exchange market with the United States stopped the yen’s decline.
