Takahashi Sanae is expected to succeed as Japan's Prime Minister; strategists say this is positive for the stock market and negative for the yen

According to the Zhitong Finance APP, on October 4 local time, the results of the ruling Liberal Democratic Party (LDP) presidential election in Japan were announced. Sanae Takaichi defeated several competitors, including Shinjiro Koizumi, and successfully became the new president of the LDP. As the LDP currently remains the largest party in the Japanese Diet, Takaichi is expected to become Japan's first female Prime Minister in the upcoming Prime Minister nomination election in a few days.

It is reported that Takaichi advocates for fiscal expansion and a politically right-leaning stance, and is seen as a disciple of the late Prime Minister Shinzo Abe. She calls for maintaining a loose monetary policy and believes that the Bank of Japan should not raise interest rates. Strategists point out that Takaichi's support for stimulus plans is expected to boost the stock market, but may simultaneously put pressure on the yen. They also indicated that expectations regarding the Bank of Japan's policies may support short-term government bonds, while longer-term bonds could be hindered by concerns over increased fiscal spending.

Japanese stocks opened higher on Monday. As of the time of writing, the Nikkei 225 index rose 4.15% to 47,669.06 points, marking its first time above 47,000 points; the Tokyo Stock Exchange index briefly rose over 3%.

Here are some expectations from market observers regarding policies under Takaichi's leadership:

Goldman Sachs Japan strategists Bruce Kirk, Julius Chan, and Mark Hung stated that Takaichi's policy signals may refocus attention on defense spending and the normalization of Bank of Japan policies, noting that this could trigger "positive market reactions and some weakening of the yen." They pointed out that if the Bank of Japan does not raise interest rates this month, "the market may conclude that there is some connection between the new government's monetary policy stance and the Bank of Japan's inaction," which "could bring more downward pressure on sentiment surrounding Japanese bank stocks."

They added that Takaichi's focus on economic security may benefit defense, critical resources, and technology stocks. Under her leadership, the risk of renewed trade tensions with the United States is limited, and cooperation in defense, shipbuilding, and cybersecurity may strengthen.

Homin Lee, a senior macro strategist at Lombard Odier Singapore, stated: "We believe there is moderate room for expansion in the term premium of Japanese government bonds, and the Tokyo Stock Exchange index may show positive price movements on Monday due to market expectations of pro-growth policy measures that may be introduced under Takaichi's leadership." "The dollar against the yen may face short-term upward pressure, as the general view is that Takaichi remains committed to reflation, although she has softened her stance in the policy debates surrounding the LDP leadership election."

Homin Lee noted that while Takaichi has ruled out the possibility of cutting the consumption tax, "questions regarding the stability of the LDP's minority governance framework under her leadership may bring slight upward pressure on the term premium of Japanese government bonds."

Donghoon Han, a portfolio manager at Matthews International Capital Management, pointed out: "In the medium to long term, the government led by Takaichi may implement meaningful structural reforms and direct investment towards strategic sectors. This is likely to have a significantly positive impact on Japan's economic trajectory and stock market. We believe she may adopt a balanced approach aimed at maintaining stability and garnering broader political support." Donghoon Han stated that technology-related stocks may benefit from the pro-stimulus stance of high-profile politician, and construction and infrastructure stocks may also benefit. The nuclear energy sector "could gain momentum from her support for the restart and construction of nuclear power plants." However, "due to expectations of dovish monetary policy, the banking sector may face short-term pressure as lower yields could impact profitability." He added, "For foreign investors, we believe that a victory for high-profile politician will enhance Japan's attractiveness. Her reform stance and commitment to growth-oriented policies signal both continuity and new momentum."

Citigroup Global Markets Japan researchers Ryota Sakagami and Keishi Ueda stated, "The market's initial reaction to this supporter of 'Abenomics,' who favors expansionary fiscal policy and continued monetary easing, may be a weaker yen and bonds, with a rise in the stock market." However, the upside for the stock market may be limited as stock prices have risen to record highs, and "after adjusting for lagging tendencies, Japanese stocks are not undervalued relative to U.S. or global stocks." The stock market has also priced in expectations of expansionary fiscal policy to some extent. Therefore, the Tokyo Stock Exchange index may rise to a recent high of around 3,200 points, and the Nikkei 225 index may rise to around 47,000 points.

They added, "The direct indicators we will be watching include negotiations with opposition parties, the new cabinet lineup, and initial cabinet approval ratings. If she can successfully navigate these areas and particularly execute family support measures as planned, we expect domestic demand expansion and entrenched inflation to drive long-term gains in the Japanese stock market."