Japanese stocks hit a new high again, Nomura: The key to Japanese stocks is how long the high market can be sustained

Kishida Fumio is about to be elected, and the Japanese stock market hits a new high.

On October 21, the Japanese stock market continued its strong opening, rising by 1% to 49,675.43 points, once again setting a historical high. The Tokyo Stock Exchange index also opened high, approaching historical peaks.

The market's momentum stems from investors' strong expectations that the new Japanese government led by Kishida Fumio will maintain an expansionary fiscal policy.

However, according to the latest analysis from Nomura Securities, this round of so-called "Kishida trading" is evolving, and its sustainability is no longer solely dependent on the scale of stimulus policies, but more closely related to the political stability of the new government. For investors, the core question has shifted from "what will happen" to "how long can it last."

The New Form of "Kishida Trading"

According to a report released by Nomura Securities strategist Naka Matsuzawa on October 20, market expectations for Kishida Fumio are undergoing profound changes. The initial "Kishida trading" was based on simple expectations of reflation policies, a weak yen, and export-oriented stocks that would benefit from these conditions.

Now, this trading logic is evolving into a "new form." Nomura's report points out that new market expectations are increasingly based on hopes for a "stable government" and "economic structural reforms," shifting the market's focus to stocks related to domestic demand.

"Kishida trading" is evolving from being solely based on expectations of reflation measures to expectations of stable governance and economic reform.

This shift implies that the market's excitement is unlikely to last indefinitely. The report suggests that without large-scale reflation measures, it will not be easy to sustain the currently high stock valuations. The market's "celebratory sentiment" may continue until Kishida Fumio's government is officially inaugurated and its cabinet and economic policy outline become clear.

Political Approval Ratings: The "Touchstone" for Stock Market Gains

Regarding whether the "new Kishida trading" can be sustained, Nomura Securities' report presents a key measure: political approval ratings. The report emphasizes that unless the approval ratings for the government and the Liberal Democratic Party (LDP) remain high, it will be difficult to maintain the upward momentum in the stock market and stability in the bond market.

The report cites a public opinion poll conducted by the Japan Times from October 10 to 13. The results show that the approval rating for the Kishida Fumio cabinet is expected to be 44%, significantly higher than previous administrations, indicating high public expectations. However, the approval rating for the LDP itself is only 20%, remaining stagnant. Based on this, Nomura judges that the LDP currently lacks sufficient political momentum to immediately dissolve the Diet and hold elections to seek an absolute majority.

Analyst Naka Matsuzawa believes that a weak government will tend to rely more on reflation measures, which will undermine the foundation of "new Kishida trading." Therefore, when market enthusiasm wanes and external factors (such as exchange rate fluctuations) begin to exert pressure, the resilience demonstrated by stock prices will become the ultimate test of the "high market trading" true value.

A Calm Examination Behind Market Enthusiasm

Amidst the market's jubilation, some investment managers have expressed more cautious views.

There are doubts about the stability of the new coalition government and its policy execution capabilities, with some investors believing that its ability to implement a large-scale expansion agenda will be constrained.

James Athey, an investment manager at Marlborough Asset Management, stated that the form of the new coalition government is not a "green light," and that Takashi Saema's ability to pursue a "large-scale expansion agenda is severely limited by political and economic factors," thus significant second-wave momentum in "high market trading" should not be expected.

Masayuki Murata, a fund manager at Sumitomo Life Insurance Company, also believes that the inclusion of the Japan Innovation Party will make the economic policies of the high market "more balanced."

According to a report by Xinhua News Agency on October 20, the ruling Liberal Democratic Party of Japan and the Japan Innovation Party held a party leader meeting on the 20th and signed an agreement, officially reaching a consensus on coalition governance. The Japan Innovation Party confirmed that it would support the Liberal Democratic Party candidate Takashi Saema in the prime ministerial election convened by the extraordinary Diet on the 21st.

Risk Warning and Disclaimer

The market carries risks, and investment requires caution. This article does not constitute personal investment advice and does not take into account the specific investment goals, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article align with their specific circumstances. Investment based on this is at one's own risk