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Contents
Understanding the Surge in Stock Prices Post-Election
Following the Liberal Democratic Party’s significant victory in the House of Representatives election, the Tokyo stock market experienced a “surprise” rally. The Nikkei Stock Average, which includes 225 major stocks, briefly surpassed the 57,000 yen mark, with expectations of reaching the mid-60,000 yen range by the end of the year, fueled by optimism towards the new Sanae Takaichi administration. However, concerns over fiscal deterioration have also led to a weaker yen and rising interest rates, presenting the government with ongoing challenges in how their economic policies are perceived by investors.
How the Liberal Democratic Party’s Victory Influenced the Market
Market participants were taken aback by the LDP’s overwhelming victory, which led to a rapid spread of buying activity in the Tokyo stock market. Daiwa Securities’ Chief Strategist, Hiroo Tsuboi, commented on the unexpected result, noting that political stability and policy predictability have increased in the market. Similar to the LDP’s victory under Shinzo Abe in the 2012 House of Representatives election, it is likely that a significant number of foreign institutional investors have entered the market.
Expectations for the Nikkei Average and the Mid-60,000 Yen Forecast
Tsuboi also highlighted the strong expectations for the Takaichi administration’s focus on investing in 17 strategic sectors, including semiconductors and rare earths. He expressed an intention to consider raising this year’s Nikkei Stock Average forecast from 62,000 yen to the mid-60,000 yen range. Meanwhile, Nomura Securities’ Executive Officer, Tetsuhiro Nishi, predicted that the best-case scenario could see the Nikkei reaching 60,000 yen by the end of March, contingent on increased buying from foreign investors.
Strategic Investment Areas Under the New Administration
The Takaichi administration is expected to prioritize investment in strategic sectors such as semiconductors and rare earths, which are anticipated to garner significant attention from investors. These areas are seen as crucial for Japan’s technological advancement and economic growth.
The Yen’s Depreciation and Rising Interest Rates
Factors Contributing to the Yen’s Weakness
Concerns over fiscal deterioration have led to a stronger selling of the yen. On the Tokyo foreign exchange market, the yen started trading in the early 157 yen range per dollar. However, remarks by Jun Mimura, the Finance Ministry’s Financial Affairs Officer, about closely watching the market, led to a rebound due to caution over possible currency intervention.
Government and BOJ’s Stance on Currency Intervention
The depreciation of the yen, which can increase import prices, is a concern for household finances. The government and the Bank of Japan (BOJ) are keeping an eye on a “defense line” around 160 yen to the dollar to restrain speculative trading, suggesting a cautious market that had already factored in the LDP’s victory.
Impact of Higher Interest Rates on Government Bonds
In the bond market, the yield on the newly issued 10-year government bonds (381st issue with a coupon rate of 2.1%) ended higher by 0.060% at 2.290%. The sale of government bonds due to fiscal concerns has resulted in higher interest rates.
Investor Insights and Future Outlook
Analysts’ Perspectives on the Current Market Dynamics
Analysts are closely monitoring how the Takaichi administration’s policies will resonate with foreign investors, which is seen as a critical factor for the continued rise of the Japanese stock market.
Foreign Investors’ Role in the Japanese Stock Market
The role of foreign investors is considered pivotal in the Japanese stock market, with their buying activity often driving market trends. The influx of foreign capital is seen as a positive sign for market confidence.
Challenges Ahead for the New Government’s Economic Policies
The new administration faces the challenge of maintaining investor confidence amidst concerns of fiscal deterioration, currency depreciation, and rising interest rates. The effectiveness of their economic policies will be closely scrutinized by both domestic and international investors.
