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Japanese stocks jumped to record levels after Prime Minister Sanae Takaichi’s landslide win in a snap general election as investors bet on her vision of a “strong and prosperous” nation.
The Nikkei 225 benchmark rose as much as 5.7 per cent on Monday, breaking through the 57,000 level for the first time, after Takaichi’s victory in Sunday’s election. The broader Topix also surged to a record high, breaching the 3,800 level.
Investors said Monday’s resurgent “Takaichi trade” was driven by the prospect that the prime minister’s unprecedented majority would allow her to implement economic stimulus and follow through on her promise to drive corporate investment in key tech sectors.
The result on Sunday gave Takaichi a two-thirds supermajority in the 465-seat lower house and the ruling Liberal Democratic Party its largest majority since its formation in 1955.
According to two senior members of the LDP, Sunday’s election result “far surpassed” the party’s own expectations.
The market was clearly positive on the scale of the LDP’s victory and the prospects for stable government, said Mansoor Mohi-uddin, chief economist at Bank of Singapore. “Investors can see Japan now has a long-term administration in place, and that takes away the near-term political risk. That means Japan now stands out against a lot of other democracies,” he said.
“Long-term investors are still in wait-and-see mode,” said Tomochika Kitaoka, chief Japan equity strategist at Nomura. “They will be paying attention to the details and the reality of policy implementation. The election result is of course a boost but this is just the starting point.”
Takaichi received strong backing from Donald Trump, whom she is set to meet in March as Japan looks to the US to maintain its strong security backing.
In a post on Truth Social the US president congratulated Takaichi on her victory. “Sanae’s bold and wise decision to call for an Election paid off big time,” Trump wrote.
Takaichi has pledged to be “strategic” in her spending plans, targeting sectors from AI to semiconductors and defence.
Technology and machinery companies led the rise in stocks on Monday, including Advantest, the world’s largest provider of chip-testing machines, which gained 13 per cent.
The prime minister has also signalled that she would like to use her newly won political strength to launch a parliamentary debate on the issue of revising Japan’s 1947 constitution, potentially including its “peace clause” cherished by advocates of Japanese pacifism.
However, the bar to changing the constitution for the first time remains high. “Revising the pacifist constitution to normalise Japan’s military would require the support of two-thirds of both the lower and upper houses, as well as a national referendum,” said analysts at Eurasia Group.
Shares in Mitsubishi Heavy Industries, which investors use as a proxy for Japanese defence spending, rose over 4 per cent. Another defence stock, IHI, gained over 5 per cent.
Analysts at Citi said that the victory for Takaichi would lead to the yen weakening against the dollar towards an “intervention level” of close to ¥160 due to “the restart of Takaichi trades” and broader questions about how she will finance her plans.
The yen however was broadly flat at ¥156.50 with officials saying they are watching for excessive moves. Japan’s 10-year government bond yield rose marginally.