Japanese shares are set to rise further as the yen and government bonds struggle after Sanae Takaichi was elected as the leader of the ruling party, likely making her the next prime minister. Her fiscal agenda promises to be more expansionary.
Nikkei Index Reaches New Heights
The Nikkei index closed at a record high of 45,769.50, surpassing its previous record, as investors anticipated a more dovish successor to Prime Minister Shigeru Ishiba.
Strategists suggest that investor shorts may drive the index even higher, possibly reaching 47,000 if short-covering occurs, according to Resona Holdings.
Market Dynamics and Bond Yields
The Japanese bond market remains tense, facing declining demand and worries about rising national debt. The loss of parliamentary majority by Ishiba’s coalition earlier this year has further complicated the situation.
The yield on 30-year Japanese government bonds surged to a record 3.285% on September 8, amidst speculation about future rate increases, especially after Takaichi’s recent election victory.
Policy Influence and Economic Outlook
Takaichi’s leadership role grants her significant influence over the Bank of Japan’s monetary policy, which could keep interest rates low while expanding fiscal spending.
Despite potential challenges for rate hikes, the expectation of increased spending could negatively impact bond markets, leading to a steeper yield curve, analysts say.
