From Reuters via MSN, February 8:
Japan's volatile financial markets must now contend with Prime Minister Sanae Takaichi firmly in the driver's seat after her decisive victory on Sunday, which hands her an electoral mandate to reflate the economy.
The question for investors is whether Takaichi's electoral momentum will prompt her to expand her stimulus ambitions or if it lends her the political leeway to proceed more cautiously.
Since she began her rise to become the nation's first female premier in October, the "Takaichi trade" has pushed domestic shares to record highs while causing a precipitous selloff in Japanese government bonds and the yen.
Voters braved heavy snowfalls in Tokyo and other parts of Japan to deliver what exit polls indicated to be the most decisive win for Takaichi's Liberal Democratic Party since 1996.
"The stock market is a true believer in Takaichi, so the big win is going to be good news for equities when the markets open on Monday," said Chris Scicluna, the head of research at Daiwa Capital Markets Europe.
Takaichi, a devotee of the "Abenomics" stimulus policies of the late premier Shinzo Abe, has pledged a proactive fiscal policy funded largely through bond issuance.
She came to office at a low point in power and popularity for her Liberal Democratic Party, which has ruled Japan for most of the post-World War Two period, forcing her to bargain with opposition parties with even more liberal fiscal platforms.
"The administration's foundation will become much more stable, making it easier for expectations to build around advancing economic policy," said Kota Suzuki, a strategist at Nomura Asset Management. "Because there will no longer be a need to actively seek the opposition's cooperation, there will be less pressure for giveaway-style fiscal expansion."
With polls already indicating a decisive LDP win, Japan's benchmark Nikkei 225 Index set an all-time high of 54,782.83 on Tuesday. Big winners of late include sectors like defence, artificial intelligence and chips that have been singled out by Takaichi for targeted investment.
But prospects for more government outlays have unsettled investors already concerned about Japan's debt burden, the largest in the developed world. Those worries came to a head on January 20, when rates across the JGB yield curve shot to multi-decade or even record highs after Takaichi called for the snap election and embraced suspending the sales tax on food....
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That's the reason we went to Nikkei Asia for Saturday's "What Japan's Sunday election means for control of parliament".
