TOKYO, Feb 9 (Reuters) – Japanese stocks jumped to record levels while the nation’s bonds slid and the yen was volatile after Prime Minister Sanae Takaichi swept to a landslide win in Sunday’s snap election.
COMMENTARY:
BRUCE KIRK, CHIEF JAPAN EQUITY STRATEGIST, GOLDMAN SACHS, TOKYO:
“PM Takaichi’s victory should enhance her political capital within the LDP. Moreover, it should also provide her with a clear mandate to pursue an agenda which focuses on strengthening Japan’s position within the region, and emphasizes the geopolitical importance of Japan’s strategic alliance with the United States.” “As such, we would expect the market to refocus its attention on national security and economic security-related thematics such as defence, critical resources and U.S. re-industrialization.”
GEORGE BOUBOURAS, HEAD OF RESEARCH, K2 ASSET MANAGEMENT, MELBOURNE:
“Size of majority gives clarity for Japan on the direction ahead. Short-term markets adjust and are assuming weaker yen and potentially higher yields across the curve. But once policies are lined up with the new massive majority, the yen should hold up again.”
“Regarding rates, JGBs are very much impacted by BOJ and MoF activities for many decades. Some additional BOJ balance sheet engineering should be anticipated given the PM’s expansionary fiscal policy narrative to date. They will aim to keep rates across the curve ‘not rise’ as much as the bond bears are anticipating.”
NAOHIKO BABA, CHIEF JAPAN ECONOMIST, BARCLAYS, TOKYO:
“In monetary policy, the Takaichi administration may, claiming public support based on the election results, temporarily increase pressure on the BOJ to maintain the status quo.”
“However, signalling such a stance could easily trigger further JPY depreciation. Ultimately, public frustration with JPY‑driven cost‑push inflation, combined with pressure from the Trump administration, is expected to push the government back toward a stance of reluctantly allowing rate hikes to counter JPY weakness.”
JUNYA TANASE, CHIEF JAPAN FX STRATEGIST, JPMORGAN CHASE & CO, TOKYO:
“The initial reaction in the yen market has been relatively modest. In the short term, the next focus will be the reaction of Japanese stocks and the JGB market to the election results, and the subsequent response of the yen. As there is a loose negative correlation between the yen and Japanese stocks, if Japanese stocks are further bought following the LDP’s landslide victory, downward pressure on the yen is likely to increase.
“In addition, Prime Minister Takaichi and LDP executives have indicated their intention to advance discussions on a consumption tax cut, and if the JGB market reacts negatively to this, there is a possibility that the trend of JGB selling and yen selling will strengthen again. Overall, short-term risks appear to be tilted somewhat toward yen weakness.”
JIN KENZAKI, HEAD OF RESEARCH FOR JAPAN, SOCIETE GENERALE, TOKYO:
“While the ruling coalition currently does not hold a majority in the upper house, the results of this election will allow them to repass bills rejected by the upper house.” “The question is how this ruling coalition’s landslide victory will affect the decision to lower the consumption tax rate on food. We believe that the possibility of lowering the consumption tax rate on food will further decrease, as cooperation with opposition parties that have long advocated a consumption tax cut will no longer be necessary.”
SKYE MASTERS, HEAD OF MARKETS RESEARCH, NATIONAL AUSTRALIA BANK, SYDNEY:
“The view is you’re probably going to see Japanese stocks up, but a weaker yen and possibly higher JGB yields.”
“It’ll be interesting to see what that reaction is in JGB yields and whether you see that filter through to broader global bond markets on the fear of fiscal spending and what that means for sovereign issuance going forward.”
JAMIE HALSE, MANAGING DIRECTOR, SENJIN CAPITAL, SYDNEY:
“Any stimulus measure is likely to positively impact any domestic-focused company and small to mid-cap stocks tend to be domestically focused.”
“Cutting the consumption tax on food is a positive for domestic consumption spending (and) increased military spending is a positive for defence stocks. The real question is what other measures may be possible now with the huge mandate granted by gaining a two-thirds majority.”
“The voters have clearly endorsed Sanaenomics, so it is possible further measures may be announced.”
MAHJABEEN ZAMAN, HEAD OF FX STRATEGY, ANZ BANK, SYDNEY:
“The decisive win for PM Takaichi and the LDP really reinforces her push for bold spending and more assertive foreign policy. Now, of course, this victory will help advance Takaichi’s pro-stimulus policies, allowing her to move forward without needing to negotiate with other parties on every issue.”
“We do expect the yen to be weaker going forward on the back of this result. In terms of JGB yields, we expect them to also move higher, just reflecting higher inflation expectations and a little bit of that fiscal agenda that Takaichi will be pulling through.”
KEISUKE TSURUTA, SENIOR BOND STRATEGIST, MITSUBISHI UFJ MORGAN STANLEY SECURITIES, TOKYO:
“In future fiscal operations, the ruling party will have less need to accommodate the relatively expansionary demands of opposition parties. That point can be taken as positive for the JGB market. On the other hand, Prime Minister Takaichi, having earned the public’s confidence, is expected to accelerate policies such as ‘responsible proactive fiscal policy’.”
“Whether a tax cut can be realised, and if so what stable revenue source would support it, remains fluid.”
“In last week’s JGB market, the ruling coalition’s big win appeared to spur the view that a consumption tax cut would be shelved, which seemed to lead to a bull flattening. Precisely for that reason, today the renewed focus on the possibility of a consumption tax cut may test some scope for a reversal. At the very least, it is likely to act as a factor restraining last week’s bull-flattening pressure.”
FRED NEUMANN, CHIEF ASIA ECONOMIST, HSBC, HONG KONG: “(Takaichi) certainly won a big political mandate and doesn’t have to rely on coalition partners, necessarily, in driving her agenda.” “But she faces a very potent opposition, or at least a check, in the markets because she has much less room for manoeuvre. If her agenda is deemed fiscally too ambitious, you’ll see very quick reactions in the bond market and the exchange rate markets. So I do think that financial markets will provide a check here on an unbridled agenda of fiscal profligacy.”
SHINGO IDE, CHIEF EQUITY STRATEGIST, NLI RESEARCH INSTITUTE, TOKYO:
“The market is taking the election results at face value in a positive way. In other words, it sees greater momentum for Prime Minister Takaichi’s policy agenda. In particular, I think investors are valuing the fact that ‘responsible, proactive fiscal policy’ will now be easier to push forward.
“On top of that, given this landslide, people expect Ms. Takaichi to stay on in next autumn’s LDP leadership race as well. So it’s not just a stable administration, what’s coming into view is the prospect of a long-term administration.”
“If (the Nikkei) were to shoot straight to 60,000, that would be a bit overdone. But 57,000, 56,000, those levels aren’t anything to get overly worked up about. From here, we’ll likely see a sense that the positives are fully priced in. With profit-taking, it may settle around 56,000.”
ZUHAIR KHAN, SENIOR PORTFOLIO MANAGER, UBP, TOKYO:
“I think the reaction indicates that Takaichi has successfully convinced the market that she will be a strong leader, but not be a fiscally irresponsible one. She was able to walk back or clarify her comments during the campaign to convince voters as well as the market that they should not take the most extreme interpretations of her comments.”
“Now that she has won a very strong mandate, she will have real power within the LDP and we will start to see her unfiltered agenda. For now, I believe she will not be fiscally irresponsible, but we will have to wait and see.”
(Reporting by Rocky Swift, Tom Westbrook, Satoshi Sugiyama; Editing by Edmund Klamann, Lincoln Feast and Shri Navaratnam.)
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