Japan’s Nikkei Hits Record High as Takaichi Becomes PM

Tokyo witnessed a significant financial shift on Tuesday as the Nikkei 225 Index soared to a record high, following the parliamentary vote that confirmed Sanae Takaichi as Japan’s new prime minister. The index climbed by 0.4 percent, closing at 49,404.66, and had previously reached an intraday high of 1.55 percent before moderating its gains. The broader Topix index saw a modest increase of 0.1 percent, while the reaction in the Japanese government bond market remained largely unchanged.

The political landscape shifted dramatically when Takaichi, a member of the ruling Liberal Democratic Party (LDP), secured the party leadership on October 4, 2023. This led to the emergence of what has been termed the “Takaichi trade,” which has positively influenced equities while negatively impacting long-term bonds and the yen. Despite the initial enthusiasm, her elevation to prime minister was temporarily stalled due to a split with their long-time political ally, Komeito.

In a strategic move, the LDP formed a coalition with the Japan Innovation Party, known as Ishin, which bolstered Takaichi’s support in the Diet, Japan’s national legislature. The Nikkei’s performance on Monday reflected this newfound stability, although analysts caution that the coalition’s minority status could limit the government’s fiscal ambitions.

According to Yusuke Matsuo, a senior market economist at Mizuho Securities, the new administration may have to adopt a pragmatic approach to economic policy. He stated, “We do not expect the Takaichi trade to gain significant traction in the medium term,” suggesting that market dynamics may shift again as Takaichi’s government establishes its priorities.

In the lower house vote on Tuesday, Takaichi received 237 votes, surpassing the majority in the 465-seat chamber. As markets anticipate the formation of her cabinet, attention will focus on potential appointments that could signal the government’s approach to spending and debt management. Reports indicate that Takaichi plans to appoint former regional revitalization minister Satsuki Katayama as finance minister, a move that may further influence market expectations.

On the Nikkei index, market activity showed a positive trend with 148 advancers compared to 74 decliners. Notably, video game developer DeNA experienced the largest increase at 6.3 percent, followed closely by Renesas Electronics, which gained 4.5 percent.

In the bond market, the yield on the benchmark 10-year Japanese government bonds (JGB) declined by 0.5 basis points to 1.66 percent, while the two-year yield fell by 1 basis point to 0.935 percent. Meanwhile, the Japanese yen depreciated by 0.2 percent, trading at 151.08 against the U.S. dollar.

As the new government begins to take shape, the implications of Takaichi’s leadership on Japan’s economic policy and market performance remain a focal point for investors and analysts alike.