Japan stocks surge as Sanae Takaichi becomes prime minister

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Japan’s parliament has elected Sanae Takaichi as the country’s first female prime minister, as Tokyo stocks hit a record high on investor optimism over her government’s policies.

The benchmark Nikkei 225 Average surged as much as 1.5 per cent on Tuesday to more than 49,900 points, within striking distance of a landmark 50,000 level. The index is up more than 26 per cent this year.

Takaichi won 237 votes from MPs in the 465-seat lower house on Tuesday following a breakthrough coalition deal by her Liberal Democratic party 24 hours earlier.

Her new ruling coalition is expected to discuss an increase in defence spending, potential tax cuts and consider a push to restart Japan’s suspended nuclear power plants.

People close to the LDP said Takaichi, a former TV presenter and deep admirer of Margaret Thatcher, was close to naming Satsuki Katayama, a former economic revitalisation minister, as the country’s first female finance minister. Takaichi is also likely to assemble a cabinet with a record number of women.

The yen continued to trade weakly against the US dollar, dropping below the ¥151 level on bets that the Bank of Japan may delay raising interest rates at next week’s policy meeting.

The stock market euphoria followed Monday’s signing of a coalition agreement between the LDP, which has ruled Japan for most of the past 70 years, and the 15-year-old reformist Japan Innovation party, which has seized a significant number of parliamentary seats around Osaka.

Hirofumi Yoshimura, the governor of Osaka and co-head of the JIP, said after the parliamentary vote that “Prime Minister Takaichi’s fervent desire to genuinely improve Japan came across very clearly . . . We are not half-hearted in our approach, and this shared conviction has brought us together.”

The formation of the LDP-JIP coalition followed the collapse this month of the LDP’s 26-year coalition with the Komeito party. Komeito shared many policy goals with the LDP but often acted as a brake on major initiatives. 

Tomochika Kitaoka, chief equity strategist at Nomura Securities, said that while Japanese stocks were part of a global equity rally the so-called Takaichi trade was a strong propellant.

He said the JIP was broadly aligned with the LDP on the need to spend more on defence and to restart Japan’s nuclear reactors, most of which have been shut since the 2011 tsunami and nuclear disaster at Fukushima. 

The Takaichi trade, said analysts, has evolved over recent weeks, and is now fuelled by expectations for a stable administration and economic structural reforms, in addition to stimulus spending. 

The JIP “is seen as pro-growth, like Takaichi”, said Kitaoka. “There will be a difficult power balance for her to manage in the future, but on defence and energy, the new prime minister will likely find it easier to enact policies with this new coalition than it was with Komeito.”

Neil Newman, a strategist at Astris Advisory, said that, given high foreign investor interest in Japanese stocks, he had raised his year-end target for the Nikkei 225 to 51,500.