Tokyo stocks surged almost 5 percent to a record high yesterday, and the yen sank on bets that the new leader of Japan’s ruling party would embark on a new era of loose monetary policy to revive the country’s economy.
However, the gains came on a mixed day for the rest of Asia, while Paris tumbled more than 2 percent on news that newly appointed French Prime Minister Sebastien Lecornu had stepped down, compounding a political crisis in the country.
News of the victory of Liberal Democratic Party (LDP) President Sanae Takaichi — who is expected to become Japan’s prime minister this month — fanned a fresh wave of optimism on Japanese trading floors, as she has previously backed aggressive monetary easing and expanded government spending.
Photo: AFP
Expectations the US Federal Reserve would cut interest rates this month continue to support risk assets, with the S&P 500 and Dow both hitting peaks along with bitcoin and gold.
After her victory on Saturday, Takaichi pledged first to implement measures to address inflation and boost Japan’s economy, rural areas and primary industries.
Takaichi “looks more inclined than the others to juice the economy,” Bloomberg Economics senior economist Taro Kimura said.
“Still, with inflation rising and long-term [bond] yields climbing, she will have to balance her stance with reality, in order not to accelerate cost-of-living squeeze and jolt the rate market,” Kimura added.
The Nikkei 225’s surge came as the yen weakened more than 1 percent to top ￥150 per US dollar, while it hit a record low against the euro, touching ￥176.25 to the single currency.
“An immediate market reaction is likely to be a return of a so-called Takaichi trade, which means higher equity prices [except banks], yen depreciation and higher super-long bond yields,” UBS Securities Japan Co chief economist Masamichi Adachi said.
Yields on 30-year Japanese bonds also rose sharply, reflecting fears the country’s already colossal debt would balloon further.
Takaichi’s win also raised questions about the chances of more Bank of Japan rate hikes, adding to downward pressure on the yen.
There were also gains in Singapore and Mumbai, but Hong Kong, Sydney, Wellington, Manila and Bangkok were all in the red.
Markets in Taiwan, China and South Korea were closed for holidays.
However, sentiment remains up, as bitcoin on Sunday hit a new peak of US$125,689.
Gold pushed past US$3,945 and closer to US$4,000 yesterday, with the US shutdown and expected rate cuts boosting its attractiveness. Oil jumped more than 1 percent after OPEC+ agreed at the weekend to boost supplies by 137,000 barrels a day — less than initially expected.
The plunge in Paris’ CAC 40 index came after French President Emmanuel Macron accepted Lecornu’s resignation, plunging the country further into political deadlock.
Macron appointed Lecornu last month, but the largely unchanged Cabinet lineup he unveiled late on Sunday was met with fierce criticism across the political spectrum.
London’s FTSE dipped in the morning, after ending last week at a record, while Frankfurt also sank.
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