Japan stocks hit record as Sanae Takaichi becomes prime minister

Open Editor’s Digest for free

Rula Khalaf, editor of the Financial Times, picks her favorite stories in this weekly newsletter.

The Japanese parliament elected Sanae Takaishi as the country’s first female prime minister, with Tokyo stocks hitting a record high amid investor optimism about her government’s policies.

Takaishi won 237 votes from lawmakers in the 465-seat lower house on Tuesday following a coalition deal reached by her Liberal Democratic Party 24 hours earlier.

Her new ruling coalition is expected to discuss increased defense spending, potential tax cuts and consider paying to restart Japan’s mothballed nuclear power plants.

The benchmark Nikkei 225 index closed Tuesday up 0.3 percent, after rising as much as 1.5 percent during trading to more than 49,900 points, close to the 50,000 level. The index has risen more than 25 percent this year.

People close to the Liberal Democratic Party said Takaishi, a former TV presenter and great admirer of Margaret Thatcher, was close to appointing Satsuki Katayama, a former economic revitalization minister, as the country’s first female finance minister. Takaichi is also likely to form a government that includes a record number of women.

The yen continued to trade weakly against the US dollar, falling below the 151 yen level on bets that the Bank of Japan may delay raising interest rates at next week’s policy meeting.

The stock market enthusiasm followed the signing of a coalition deal on Monday between the Liberal Democratic Party, which has ruled Japan for most of the past 70 years, and the 15-year-old reformist Japan Innovation Party, which captured a large number of parliamentary seats around Osaka.

“Prime Minister Takaishi’s intense desire to truly improve Japan was very clearly demonstrated,” Hirofumi Yoshimura, Osaka governor and co-chair of JIP, said after the parliamentary vote. “We are not wavering in our approach, and it is this common conviction that has brought us together.”

The formation of the LDP-IJP coalition followed the collapse of the LDP’s 26-year coalition with the Komeito Party this month. The Komeito Party shared many policy goals with the LDP, but often acted as a brake on major initiatives.

While Japanese stocks were part of the global stock rally, the so-called Takaishi trade was a strong driver, said Tomochika Kitaoka, chief equity strategist at Nomura Securities.

He said the JIP is generally aligned with the Liberal Democratic Party on the need to spend more on defense and restart Japan’s nuclear reactors, most of which have been shut down since the 2011 tsunami and nuclear disaster in Fukushima.

Analysts said Takaishi’s trade has evolved in recent weeks, and is now supported by stable management expectations and economic structural reforms, as well as stimulus spending.

Japan’s investment program “is seen as pro-growth, like Takaichi,” Kitaoka said. “There will be a difficult balance of power for her to manage in the future, but on defense and energy, the new prime minister will likely find it easier to make policies with this new coalition than she did with Komeito.”

Neil Newman, a strategist at Astris Consulting, said that given the great interest of foreign investors in Japanese stocks, he raised his year-end target for the Nikkei 225 index to 51,500 points.