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Japanese shares hit record highs after Prime Minister Sanae Takaichi’s landslide victory in a snap general election as investors bet on his vision of a “strong and prosperous” nation.
Following Takachi’s victory in Sunday’s election, the Nikkei 225 benchmark rose as much as 5.7 percent on Monday, surpassing the 57,000 level for the first time. Broader Topics also reached a record high, breaking the 3,800 level.
Investors said Monday’s resurgent “Takaichi trade” was driven by the prospect that the prime minister’s unprecedented majority will allow him to deliver on his promise to implement economic stimulus and increase corporate investment in key tech sectors.
Sunday’s results gave Takachi a two-thirds majority in the 465-seat lower house and the ruling Liberal Democratic Party’s largest majority since its formation in 1955.
Sunday’s election results far exceeded the party’s own expectations, according to two senior LDP members.
Mansour Mohiuddin, chief economist at Bank of Singapore, said the market was clearly positive on the prospects of an LDP victory and a stable government. “Investors can see that Japan now has a long-term administration, and that removes near-term political risk. This means Japan now stands out against many other democracies,” he said.
“Long-term investors are still in a wait-and-see mode,” said Tomochika Kitaoka, chief Japan equity strategist at Nomura. “They will pay attention to the details and reality of policy implementation. The election results are certainly a boost but it is just the starting point.”
Takaichi received strong support from Donald Trump, whom she is due to meet in March as Japan looks to the US to maintain its strong security support.
In a post on Truth Social, the US President congratulated Takachi on his victory. “Sane’s bold and wise decision to call the election paid off big,” Trump wrote.
Takaichi has promised to be “strategic” in his spending plans, targeting sectors from AI to semiconductors and defense.
Technology and machinery companies led the rise in shares on Monday, including Advantest, the world’s largest provider of chip-testing machines, which gained 13 percent.
The Prime Minister has also indicated that she would like to use her newly won political power to initiate parliamentary debate on the issue of revising Japan’s 1947 Constitution, which would potentially include the “peace clause” cherished by proponents of Japanese pacifism.
However, the hurdles to changing the Constitution for the first time remain high. “Revising the pacifist constitution to normalize Japan’s military would require two-thirds support from both the lower and upper houses, as well as a national referendum,” Eurasia Group analysts said.
Shares of Mitsubishi Heavy Industries, which investors use as a proxy for Japanese defense spending, rose more than 4 percent. Another defense stock, IHI, rose more than 5 percent.
Citi analysts said a win by Takachi would cause the yen to weaken against the dollar, near the “intervention level” of 160 yen, as “Takachi trades resume” and there are widespread questions about how he will finance his plans.
However the yen was broadly steady at ¥156.50 and officials said they were keeping an eye on extreme moves. Japan’s 10-year government bond yield rose marginally.
