Japan Stocks Gain, Bonds Slump On Takaichi Election Expectations
Japan’s Nikkei 225 and Topix benchmarks both climbed to fresh all-time intraday highs, rising as much as 3.6% and 2.4%, respectively.
Japanese stocks rallied and government bonds slumped on speculation that Prime Minister Sanae Takaichi may soon call a snap election.
With the prime minister’s popularity running high, going to the polls would likely cement her authority and bring a second wind to the so-called Takaichi trade, which has helped fuel equity gains, bond losses and a weak Japanese currency.
Japan’s Nikkei 225 and Topix benchmarks both climbed to fresh all-time intraday highs, rising as much as 3.6% and 2.4%, respectively.
The yen made a small and brief gain on Tuesday morning after Finance Minister Satsuki Katayama said that she and US Treasury Secretary Scott Bessent shared concerns about the weakening currency. Yet it remains under pressure and within close reach of the weakest level since mid-2024.
The Japanese currency was trading at around 158 to the dollar as of 10 a.m in Tokyo, and Japan’s 30-year government bond yield surged as much as 12 basis points to 3.52%.
“The market view is likely to increasingly be that high cabinet approval ratings mean an LDP victory and hence a stable political platform, making the initial Japanese market reaction likely to be a renewed flare-up of the Takaichi trade,” wrote Citi Research analysts Ryota Sakagami and Keishi Ueda in a note.
That points to “significant gains” in sectors that stand to benefit from Takaichi’s spending, like defense and nuclear power, plus forex-sensitive exporters like autos, they added.
Defense-related stocks like Kawasaki Heavy Industries Ltd. and IHI Corp. were among the Nikkei’s top performers Tuesday, both gaining over 5%. Nuclear plant engineering firm Toyo Engineering Corp. soared as much as 15%.
The yen’s weakness was a boon for Japanese exporters, with Toyota Motor Corp. shares advancing as much as 5.2% and Hitachi Ltd. up 3.8%. Tech-linked shares like Advantest Corp., Tokyo Electron Ltd., Lasertec Corp. and Fuji Electric Co. also outperformed. They’re set to benefit from Takaichi’s plans to boost Japan’s AI and chip sectors.
What Bloomberg Strategists say:
The big yield dispersion at the long end of the Japanese bond curve shows no sign of reversing, which suggests BOJ intervention may be the only way to shore up the market. Moreover, talk of early Japanese elections will further undermine sentiment in JGBs as boosting stocks will be a priority for the government heading into any vote.
— Mark Cranfield. Markets Live Strategist. Read more on MLIV.
In contrast, Japanese government bonds are under pressure on expectations that Takaichi’s fiscal expansionary stance would strengthen under a clearer mandate. A climb in long-term JGB yields is a tailwind for shares of financial firms like banks, said Citi’s Sakagami and Ueda. Megabank Mitsubishi UFJ Financial Group Inc. gained as much as 3.8% Tuesday to a new all-time high.
Demand for Japanese shares was further bolstered by an emerging ‘Sell America’ trend, triggered by rising worries about Federal Reserve independence under President Donald Trump.
“Global capital is shifting toward Japan amid concerns over negative factors in the US, like geopolitical tensions and wavering Fed independence,” said Hideyuki Ishiguro, chief strategist at Nomura Asset Management Co.
