Japan’s Nikkei jumps nearly 6% after Takaichi’s landslide win fuels spending hopes

TOKYO - Japan’s benchmark stock index surpassed 57,000 for the first time on Feb 9, after Japanese Prime Minister Sanae Takaichi’s historic win in Feb 8’s election ignited expectations of more government spending in key industries.

The Nikkei 225 benchmark jumped as much as 5.7 per cent to a fresh record of 57,337.07 as of 10am local time, with the broader Topix also up as much as 3.4 per cent to a new peak. Tech and machinery led the climb, with some chip-gear makers rising over 10 per cent.

Ms Takaichi’s ruling coalition secured an overwhelming majority in the Lower House vote, giving her a clear mandate to pursue fiscal expansionary policies that have already driven Japanese stocks to record highs. Sectors seen benefiting from her “strategic” spending plans, including artificial intelligence, semiconductors, quantum computing and defence, have powered the climb and were among Feb 9’s best performers.

Ms Takaichi’s win “far surpassed” initial expectations, and “has the potential to open the floodgates on her expansionary policies”, wrote Mr Andrew Jackson, head of Japan equity strategy at Ortus Advisors, in a note. He expects upside for defence-related stocks like Mitsubishi Heavy Industries, as Ms Takaichi has pledged to increase security spending, along with space-related names. 

Financial stocks will also win out due to higher long-term bond yields, he added, while food-linked shares may benefit from Ms Takaichi’s election promise of a temporary cut to the consumption tax on food.

Defence manufacturers Mitsubishi Heavy, Kawasaki Heavy Industries and IHI were all strong on Feb 9, with IHI gaining as much as 7.2 per cent. Satellite firm Sky Perfect JSAT Holdings was among the Topix’s best performers, while real estate and construction stocks, also expected to benefit from Ms Takaichi’s policies, were also solid.

The ruling Liberal Democratic Party’s “historic victory gives Prime Minister Takaichi a stable majority, reducing coalition constraints and enabling decisive action on fiscal stimulus, AI, semiconductors, energy security, and strategic reforms”, said Mr Marc Jocum, senior investment strategist at Global X Management. “Markets now have a clear fiscal policy runway through 2028 until the next election.”

Chip-gear maker Advantest was the biggest contributor to the Topix’s gains on Feb 9, rising as much as 15 per cent. Expectations of more AI investment from big tech firms following Amazon.com’s earnings on Feb 6 are an extra tailwind for Japan’s semiconductor sector “on top of the Takaichi upside”, said Ortus’ Mr Jackson. 

The yen came under pressure after the pro-stimulus Takaichi’s decisive win fuelled speculation that she might pursue a more aggressive fiscal spending agenda with fewer political obstacles.

The currency weakened to as far as 157.76 to the US dollar before paring losses to trade around 157 mid-morning in Tokyo, not far from where it traded late on Feb 6 before the election.

Japan’s top currency official said on Feb 9 the government remains on high alert as it monitors the foreign exchange market.

“As always, we are watching market developments with a high sense of urgency,” Mr Atsushi Mimura, the Finance Ministry’s vice-minister for international affairs, told reporters. “We remain in close communication with the market,” he added.

Earlier on Feb 8, Finance Minister Satsuki Katayama said on TV that she was ready to communicate with the market on Feb 9 if needed. She reiterated that she remains in close contact with US Treasury Secretary Scott Bessent and that they share responsibility for maintaining stability in dollar-yen movements.

The yen’s weakness has been a double-edged sword for Japan, on the one hand raising profits for the country’s exporters, but on the other, squeezing the budgets of ordinary households. BLOOMBERG, REUTERS