Why did Japanese stocks surge after Sanae Takaichi's election victory?

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From last night until now in Japan, we may have witnessed a piece of history.

Sanae Takaichi's high-stakes gamble paid off. The Liberal Democratic Party, to which Takaichi belongs, secured 316 seats in the House of Representatives election, its best performance since the party's founding. Combined with its ally, the Japan Innovation Party, they obtained 352 seats, exceeding a two-thirds majority. This means Sanae Takaichi can continue to govern.

This news spurred a sharp rise in the Japanese stock market at Monday's open, with the index hitting a new all-time high during the session.

Since 2012, Japanese stocks have entered a prolonged bull market, with the Nikkei index accumulating a gain of 561%.

Why can Japanese stocks continue to rise strongly during a period of relatively weak economic growth and an aging population in Japan?

First, after Shinzo Abe took office in 2013, he implemented Abenomics, injecting massive liquidity into the capital market.

Second, Japan's large corporations have largely emerged from the post-bubble crisis, with continuous improvement in profitability.

Japanese large enterprises, on one hand, have cut unprofitable businesses, strategically focusing on upstream materials and core technology sectors.

In this wave of AI, stocks of successfully transformed Japanese semiconductor material companies have surged.

On the other hand, they have invested overseas, aggressively entering the US, Europe, and emerging markets.

Now, 50% of the revenue of listed Japanese companies comes from overseas markets. Among the top ten companies by market capitalization, this proportion reaches 70%.

In other words, the Nikkei index is not primarily anchored to the domestic market. Warren Buffett's investment in Japan's five major trading houses is not an investment in the domestic economy but in the global profitability of Japan's large multinational corporations.

Third, the market is betting on the "Takaichi trade." Sanae Takaichi inherits Abe's political legacy, attempting to aggressively expand fiscal spending while promising increased subsidies to promote semiconductor supply chain autonomy and AI innovation.

Takaichi's overwhelming election victory will push Japan to the right. Currently, global politics is aligning to the right, while left-wing struggles are also exceptionally sharp. Economically, this manifests as countries strengthening economic sovereignty, heavily investing in AI, semiconductors, and defense, extending to industries like aerospace.

This time in Japan, we may have witnessed a piece of history. We are facing new bilateral and global relationships.