Japanese Stocks Soar After Takaichi’s Landslide Poll Win

Japanese stocks rose 5% on Monday, hitting a record high, after Prime Minister Sanae Takaichi’s Liberal Democratic Party won a landslide victory in Sunday’s election.

Takaashi’s Liberal Democratic Party is expected to win an outright majority – two-thirds of the seats in parliament’s lower house (316 of 465 seats) – a result that could put her in a strong position over the next four years.

Her historic victory boosts her chances of enacting tax cuts and spending plans, even as her election promises – such as cutting the food sales tax by 8% over two years – have worried financial markets.

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Investors have been worried because of uncertainty over whether Japan, which has the highest debt burden among developed countries, can afford such a move. These concerns caused the yen to fall to historic lows and fueled its depreciation. Government bonds sell off sharply.

But the initial reaction on Monday was that stocks surged while bonds fell and the yen recovered some losses as a victory for the Liberal Democratic Party should help the party pursue decisive stimulus measures.

The Nikkei rose 5%, crossing 57,000 points for the first time, before retreating to 3.9% at the close at 56,363.94 points.

“A great responsibility”

According to Agence France-Presse, Gao Yi said that after the victory she felt she had a “big responsibility” to make the country more successful.

“This is the beginning of a great responsibility to make Japan stronger and more prosperous,” Takaichi told a news conference.

Her agenda includes increased defense spending, possible changes to the constitution and tougher immigration rules amid a declining population.

The region will be watching closely to see whether temperatures rise or fall after her November remarks about Taiwan anger Beijing.

Beijing warned Tokyo on Monday that reckless actions would be met with a “firm response.”

After becoming Japan October prime minister for fifth time in as many yearsHigh City took advantage of the honeymoon period by holding an early election last month. It was a gamble that paid off handsomely.

US President Donald Trump, who will host Taka next month, congratulated her after her earlier endorsement.

“I wish you great success in passing your ‘Conservatives, Peace Through Strength’ agenda,” Trump wrote on The Truth Society.

Takaichi was a heavy metal drummer in her youth and an admirer of Britain’s “Iron Lady” Margaret Thatcher. When she became leader of the Liberal Democratic Party, she was on the ultra-conservative fringe of the Liberal Democratic Party.

Although Takaichi is Japan’s first female prime minister, she has shown little interest in framing her leadership around gender in male-dominated Japanese politics.

Popular, but needs to fix economy

She is popular with voters, especially young people, and fans have praised everything about her, from her handbags to her impromptu performance with South Korea’s president to a K-pop song. But she must boost the economy to remain popular.

The Liberal Democratic Party has ruled Japan almost uninterruptedly for decades but lost support in recent elections due to dissatisfaction with rising prices and corruption.

Ryutaro Kono, chief Japan economist at BNP Paribas, said: “The election results raise the possibility of consumption tax cuts,” although he noted that some members of her party have reservations about tax cuts.

“The prime minister has repeatedly said that past fiscal policies were too tight. It is clear that she strongly favors an overhaul of the fiscal policy currently being pushed by finance experts within the Ministry of Finance and the Liberal Democratic Party,” Kono said.

However, Takaichi again said on Sunday that she aspires to be a responsible fiscal manager and wants to “build a strong and resilient economy.”

She said the food tax cuts – which would cost about 5 trillion yen ($31.9 billion) a year – were only temporary.

The British prime minister has suggested she could tap into non-tax revenues such as Japan’s $1.4 trillion in U.S. Treasuries, although analysts say she is unlikely to sell a large stake as it would strain relations with Washington.

“In fact, the high government’s policies are unlikely to curb inflation as voters expect,” Tetsuo Otani of the Japan Institute of International Affairs told AFP.

“Income tax hikes related to increased defense spending will also be inevitable. If these policies lead to a triple decline in stocks, the yen and government bonds, people’s lives will become more difficult,” Otani said.

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Jim Pollard

Jim Pollard is an Australian journalist based in Thailand since 1999. He worked for News Ltd newspapers in Sydney, Perth, London and Melbourne before traveling to South East Asia in the late 1990s. He served as a senior editor at The Nation for more than 17 years.