Aminu Salisu Sodangi is a Nigerian journalist and content strategist known for his insightful coverage of current affairs, human-interest stories, and socio-political developments. With a keen...
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Japanese stocks are anticipated to continue breaking records, even as the country’s currency and bonds falter following the election of fiscal dove Sanae Takaichi on Saturday to head the ruling party and likely assume the role of prime minister.
Takaichi, aged 64, was viewed as having the most aggressive fiscal and monetary strategy among the five candidates in the Liberal Democratic Party contest to succeed the hawkish Prime Minister Shigeru Ishiba.
In the run-up to the LDP election, a ‘Takaichi trade’ surfaced—favoring stocks while being pessimistic about Japanese government bonds, especially those with longer maturities—preparing for a victory by Takaichi, a supporter of the ‘Abenomics’ stimulus measures initiated by the late Shinzo Abe.
‘POSITIVE SURPRISE’ FOR SHARES, BONDS ON EDGE
Japan’s benchmark Nikkei (.N225) achieved a record closing high of 45,769.50 on Friday, surpassing the previous week’s record, as investors speculated that whoever took over from Ishiba would adopt a more dovish stance.
Short positions on the index have been accumulating recently and may now be reversed, according to Resona Holdings strategist Hiroki Takei.
‘This could be seen as a positive surprise for stock prices,’ Takei remarked. ‘If short-covering occurs, the rally could gain traction, potentially driving the index towards the 47,000 mark.’
The Japanese government bond market has been unsettled since late May due to declining demand from traditional investors, reduced backing from the central bank, and worries about increasing debt.
The sector was dealt another blow in July, when Ishiba’s coalition lost its majority in the upper house of parliament – having lost its lower house majority last year – as outsider parties campaigning on tax cuts and increased spending gained seats.
The 30-year JGB yield surged to a record 3.285% on September 8, the first trading day after Ishiba announced he was stepping down.
In recent weeks, the Nikkei’s momentum slowed and longer-term JGBs rallied as markets gave the edge in the LDP race to farm minister Shinjiro Koizumi and Takaichi appeared to moderate her stance, leaving sales tax cuts out of her platform and staying mostly mum on the Bank of Japan.
“She seemed to have toned down her rhetoric recently but ultimately the feeling is still that she will push for looser fiscal and monetary policy,” said James Athey, a fixed income manager at British investment group Marlborough. “As such, there is likely to be a negative reaction in long-end JGBs and the yen.”
Japan’s currency closed at 147.44 per dollar on Friday, staging a 1.4% gain on the week that was the sharpest since mid-May.
After her LDP victory, Takaichi told a press conference the government and central bank must work closely to ensure Japan’s economy achieves demand-driven inflation backed by rising wages and corporate profits.
Prices for shorter-dated JGBs, those most sensitive to central bank rates, have been on a declining trend, pushing their yields higher as evidence mounted that Japan’s economy was sound enough for the BOJ to resume tightening policy.
BOJ Governor Kazuo Ueda has put the central bank on a long-term path to raise interest rates and shrink its balance sheet after more than a decade of massive stimulus that was a key part of former Prime Minister Abe’s economic platform.
Yields on two-, five-, and 10-year JGBs have all reached levels not seen since the financial crisis in 2008 on bets the BOJ could raise rates as early as this month’s meeting.
Takaichi’s wide support among rank-and-file LDP members will lend her cabinet a strong mandate and a heavy hand in influencing monetary policy by the BOJ, said Tohru Sasaki, chief strategist at Fukuoka Financial Group and a former BOJ official.
“Takaichi will make it difficult for the BOJ to raise rates, so yields will go lower,” Sasaki said. “But at the same time, she’s likely to expand spending, which is negative for bonds. A steepening of the yield curve is a possible reaction.”
Aminu Salisu Sodangi is a Nigerian journalist and content strategist known for his insightful coverage of current affairs, human-interest stories, and socio-political developments. With a keen eye for balanced reporting, he combines traditional journalistic principles with modern storytelling techniques to engage diverse audiences.
Aminu has contributed to editorial teams focused on community journalism and national development, consistently advocating for credible information and transparent governance. His writing highlights the voices and experiences that shape Nigeria’s evolving media landscape.
He currently works with Etimes247 Newspaper, where he contributes to news writing, editorial coordination, and content development. Aminu is passionate about using journalism to promote education, civic participation, and social progress.
Areas of Expertise: News reporting | Editorial writing | Media research | Public affairs | Digital communication
