The Tamesis
Reports that the Japanese government may hold a snap election next month pushed the Nikkei average to a record high on Tuesday.
But the yen fell to record lows against the euro and other currencies as investors bet Japan will introduce more fiscal stimulus.
Japanese government bonds also plummeted, pushing 20-year bond yields to record highs, as Prime Minister Takaichi Sanae plans to dissolve parliament when it reconvenes on January 23 to prepare for a general election as early as February 8.
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The Nikkei rose 3.6% to a record 53,814.79 points and hovered around that level throughout the session. The Topix rose 2.4% to 3,599.31 points, also a record high.
A public holiday on Monday boosted buying, with Japanese shares chasing a second day of gains on Wall Street to hit record highs.
The yen’s rapid decline since late last week has also supported sentiment, as a weaker currency increases the value of overseas earnings for Japan’s heavyweight exporters.
The yen plunged to unprecedented levels of 185.28 per euro and 199.12 Swiss franc against the euro on Tuesday, and fell to a 1-1/2-year low of 158.925 against the dollar.
Maki Sawada, equity strategist at Nomura Securities, said that “the market generally believes that if Takahiro dissolves parliament, the result will be a depreciation of the yen, a rise in stocks and a fall in bond prices” because “early elections mean aggressive fiscal spending.”
Yields on the longest-term Japanese government bonds rose sharply on Tuesday, with the 20-year government bond yield soaring 8 basis points to an unprecedented 3.135% and the 30-year government bond yield soaring 12 basis points to a record high of 3.52% set last week.
So-called “ultra-long” bonds are the most sensitive to the fiscal outlook. When bond prices fall, yields rise. The 10-year Treasury yield climbed 6 basis points to 2.15%, a 27-year high.
The head of coalition partner Ishin told state broadcaster NHK on Sunday that he met with Takaichi on Friday and was left with the impression that elections were imminent.
strong approval rating
It will be the first time Gao Yi will face voters, giving her a chance to capitalize on the strong public support she has enjoyed since taking office in October.
“If concerns about fiscal expansion intensify during the election campaign, long-term yields may come under upward pressure, at least temporarily,” said Barclays economists Naohiko Baba and Takashi Onoda.
“Having said that, the weak yen and rising long-term yields may ultimately limit the government’s proactive fiscal policy.”
Transportation equipment, which includes automakers and their suppliers, was the best performer among 33 industry groups on the Tokyo Stock Exchange on Tuesday, rising nearly 5%.
Toyota Motor rose 7.1% and Subaru gained 4.2%.
In the Nikkei, stocks in the semiconductor sector outperformed. Advantest, a maker of chip testing equipment, surged 8.4%, and Tokyo Electron, a maker of chip manufacturing tools, surged 8.1%.
Of the 225 constituent stocks in the Nikkei, 187 rose, 37 fell and 1 was unchanged.
Meeting with South Korean Lee Jae-yong in the first year of high school
Koichi and South Korean President Lee Jae-myung met in Japan on Tuesday as the two East Asian neighbors look to strengthen security and economic cooperation.
The two leaders are widely expected to discuss denuclearization of the Korean peninsula, the fate of Japanese nationals abducted by North Korea and cooperation in areas such as artificial intelligence and semiconductors.
“We hope that Japan-South Korea relations can reach greater heights this year,” Takahiro told Lee Myung-bak at the start of the summit.
The meeting in Takaichi’s hometown of Nara comes a week after Lee met with Chinese President Xi Jinping. Tokyo and Beijing remain embroiled in diplomatic spat after Takaichi’s remarks Japan may deploy troops if Chinese attack on Taiwan poses existential threat.
China considers Taiwan part of its territory, but Taiwan denies this.
Lee Myung-bak, who will stay in Japan for two days, earlier said that although the diplomatic confrontation is not conducive to regional peace, he will not intervene in the dispute.
“In the current complex and dizzying international order, cooperation between South Korea and Japan is more important than ever,” he told High Market.
Gao and Li will issue a joint statement after the summit.
- Reuters Additional editing by Jim Pollard
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