Japanese Stocks Surge as Sanae Takaichi Wins Ruling Party Leadership

Japanese stocks and bond yields experienced a significant surge on Monday, while the yen fell, following the victory of Sanae Takaichi in the leadership election of the ruling Liberal Democratic Party. Takaichi, expected to become the country’s first female prime minister later this month, has previously supported aggressive monetary easing and increased government spending, similar to the economic policies of former Premier Shinzo Abe.

Although Takaichi toned down her “Abenomics” stance during the campaign, her win has sparked concerns about the potential impact on Japan’s economy, particularly with regard to inflation and the country’s already substantial debt. The Nikkei 225 index rose by over 4% in morning trade, while the yen hit a new record low against the euro. Yields on 30-year Japanese bonds also increased sharply, reflecting fears that the country’s debt, which exceeds 200% of its GDP, may continue to grow under Takaichi’s leadership.

According to Taro Kimura, an economist at Bloomberg, Takaichi appears more inclined to stimulate the economy than her predecessors. However, Kimura also noted that she will need to balance her stance with the current economic reality to avoid exacerbating the cost-of-living squeeze and disrupting the rate market. The Bank of Japan, which began raising interest rates from below zero last year, may resume its rate hikes this month, despite Takaichi’s appointment, according to Marcel Thieliant at Capital Economics.

Takaichi’s immediate challenge will be to secure the support of at least one opposition party to form a working majority in parliament. She also needs to address Japan’s economic competitiveness, strengthen its technological and industrial base, and mitigate the effects of an aging and declining population. As an arch-conservative and China hawk, Takaichi’s leadership is expected to have significant implications for Japan’s economic and foreign policies.

One of Takaichi’s first official duties as premier will be to receive US President Donald Trump, who is scheduled to visit Japan in late October. Takaichi has stated that she has no plans to overturn the recent trade deal between Tokyo and Washington, despite ongoing questions surrounding the agreement. With her victory, Takaichi has become the head of the Liberal Democratic Party, which has governed Japan almost continuously since 1955. Her task will be to restore the party’s fortunes, which have been impacted by voter anger over inflation and a recent scandal.