Takaichi victory sparks record surge in Tokyo markets

Takaichi’s economic stance fuels optimism

Takaichi, who is expected to be appointed as prime minister later this month, reignited optimism among traders. She is well-known for advocating aggressive monetary easing and increased government spending to stimulate economic growth. As news of her victory spread, the Nikkei 225 surged, while the yen fell sharply, trading at nearly 150 per dollar and reaching historic lows against the euro at 175.69.

‘Takaichi trade’ in progress

The market's immediate reaction indicates a 'Takaichi trade' is in progress, implying higher equity prices—excluding banks—yen depreciation, and rising long-term bond yields," observed Masamichi Adachi, chief economist for Japan at UBS Securities. Indeed, yields on 30-year Japanese bonds increased notably, heightening concerns about the potential for further worsening of Japan's enormous debt levels under Takaichi's leadership.

Mixed sentiment across Asia

While Tokyo enjoyed a rally, sentiment across the rest of Asia was mixed. Markets in Hong Kong, Sydney, and Seoul closed lower, in contrast to gains in Singapore and Manila. Shanghai markets were closed for a public holiday. Despite the regional differences, investors remained optimistic about interest rate cuts from the Federal Reserve, which also propelled the S&P 500 and Dow to new heights, along with increases in cryptocurrency and gold.

Takaichi’s economic pledge

Following her election victory, Takaichi pledged to take measures to address inflation and strengthen Japan’s economy, with a particular emphasis on rural regions and primary industries such as farming and fisheries. Taro Kimura from Bloomberg Economics stated, “Takaichi seems more inclined to stimulate the economy, but with rising inflation and increasing bond yields, she faces the challenge of balancing economic support without exacerbating the cost-of-living crisis.”

Global markets face U.S. shutdown impact

Meanwhile, global markets continue to grapple with the consequences of a prolonged U.S. government shutdown. Federal agencies have been without funds since last Wednesday, causing disruptions to various public services and delays in releasing key employment data. Economists remain hopeful that a swift resolution could enable the release of the September jobs report before the Federal Reserve’s upcoming meeting, potentially opening the way for further interest rate cuts.

Oil prices boosted by OPEC+

Amid the backdrop of political and economic turbulence, oil prices also enjoyed a boost of more than one per cent after OPEC+ announced an increase in supplies by 137,000 barrels a day, albeit less than initially anticipated.

Japan’s economic outlook under Takaichi

As Tokyo celebrates its stock market triumph, all eyes will be on Takaichi's forthcoming policies and how they will shape Japan's economy in the face of both domestic challenges and global uncertainties.

Key Market Updates:

- Tokyo - Nikkei 225: Up 4.5 per cent at 47,835.36

- Hong Kong - Hang Seng Index: Down 0.5 per cent at 26,995.12

- Dollar/Yen: Up at 149.84 from 147.45

- West Texas Intermediate: Up 1.5 per cent at $61.78 per barrel

- London - FTSE 100: Up 0.7 per cent at 9,491.25

Investor focus going forward

Investors will be keen to see how Takaichi navigates the complex economic landscape ahead, particularly as rising inflation and a fluctuating yen offer both challenges and opportunities in the pursuit of revitalising Japan's financial fortunes.