Japan’s ‘Takaichi trade’…stocks surge, government bond prices plunge

Source

Korea Economic Daily

Summary

The report said the Nikkei surged, breaking above 57,000 for the first time ever, after the LDP secured 316 seats in the House of Representatives.
It noted that expectations for Prime Minister Takaichi’s expansionary fiscal policy pushed Japanese government bond yields higher, with 2-year and 5-year JGB yields hitting new highs.
It added that South Korean stocks rose in tandem, with the KOSPI climbing 4.1% to close at 5,298.04 on positive sentiment from the U.S.

LDP wins ‘landslide’ with 316 seats

Nikkei jumps on expectations for expansionary fiscal policy

5-year JGB yield hits a record high

KOSPI also rises 4.1% to close at 5,298

As the ruling Liberal Democratic Party (LDP), led by Japanese Prime Minister Sanae Takaichi, scored a landslide victory by securing on its own the threshold needed to initiate constitutional revision proposals, the so-called “Takaichi trade” swept through Japan’s financial markets on the 9th. The Nikkei index at one point surged more than 5%, but concerns over “easy money” policies pushed Japanese government bond yields higher (and bond prices lower).

In Tokyo trading, the Nikkei briefly jumped 5.68% from the previous session to 57,337, topping the 57,000 level for the first time. It later pared gains and closed up 3.89% at 56,363. The move easily surpassed the prior record high of 54,720 set on the 3rd.

The rally came as expectations spread that Prime Minister Takaichi’s expansionary fiscal policy would gain momentum after the LDP, as a single party, secured 316 seats—more than two-thirds of the House of Representatives (lower house; 465 seats)—for the first time in the postwar era. Some in the market are forecasting the Nikkei has a strong chance of reaching the 60,000 mark.

Meanwhile, bond yields rose on speculation that if expansionary spending fuels inflation, the Bank of Japan could accelerate rate hikes. The 2-year JGB yield, which is sensitive to monetary policy, climbed to 1.305%, the highest in 30 years, while the 5-year JGB yield rose to 1.735%, setting a record high. The yen edged lower to the 156-per-dollar range.

With the LDP securing enough seats to submit a constitutional revision bill on its own in the lower house, some see a possibility it could pursue a more hawkish foreign and security policy. Concerns have also been raised that constitutional changes could steer Japan toward becoming a “war-capable country.”

South Korean equities also surged on a tailwind from the U.S. The KOSPI closed up 4.1% at 5,298.04, marking a rise after three sessions since the 4th. The move was driven largely by a broad rebound in Wall Street’s three major indexes—the Dow, S&P 500 and Nasdaq—on bargain-hunting after steep declines.

Tokyo=Il-gyu Kim, Correspondent / Ye-jin Jeon, Reporter black0419@hankyung.com