Takaichi win primes Japan stocks for gains, dampens yen and bonds

Sanae Takaichi

Japan’s stock market is poised to extend its rally in the weeks and months ahead while the nation’s currency and bonds are vulnerable to further declines after a strong showing by Prime Minister Sanae Takaichi’s Liberal Democratic Party in Sunday’s lower house election.

Exit polls suggest the LDP is set to win a majority, with public broadcaster NHK forecasting the ruling coalition may take two-thirds of the seats, a result that many investors had positioned for in recent weeks.

“Overall, the election results are welcome news for the Nikkei given the clear outcome and clearer political path for Takaichi’s stimulus policies,” said Tim Waterer, chief market analyst at KCM Trade. “The yen could be further pressured however with the LDP’s fiscal stimulus plans effectively given the ‘green light’.”

The benchmark Topix index, which closed at a record high on Friday, has rallied more than 8% this year, while a global measure of developed-market equities eked out a gain of just around 2%, on expectations that higher spending advocated by Takaichi will fuel economic growth.

The yen retreated 1.6% last week to 157.22 to the dollar, leaving it within reach of a zone around 160 versus the greenback that has previously drawn Japanese authorities into the market to defend the currency.