Japan stocks surge to record, bonds slide with yen on Takaichi's landslide election win

Synopsis

Following Prime Minister Sanae Takaichi's resounding electoral triumph, Japanese stocks have soared to unprecedented heights. With her party attaining a supermajority, ambitious spending and tax relief measures are now on the horizon. Meanwhile, the yen has slipped against major currencies, hitting new lows against the Swiss franc, while bond yields are on the rise.

Japanese stocks jumped to record peaks while ‍bonds slid and the yen sagged to an all-time low against the Swiss franc after Prime ⁠Minister Sanae Takaichi scored a landslide win in Sunday's snap election.

Takaichi's Liberal Democratic Party won 316 of the 465 seats in parliament's lower house, giving her the mandate to push through her big ‌spending plans and ‌promised tax relief without negotiating with other parties. The so-called supermajority also allows the LDP to pass legislation without ‌upper house approval.

The Nikkei 225 share average rallied as much as 5.7% to an unprecedented 57,337.07 by 0030 GMT.

The broader Topix jumped 3.4% to a record 3,825.67.

Ten-year Japanese government bond yields rose as much as 4.5 basis points (bps) to 2.275%, and 30-year JGB yields climbed as much as 6.5 bps to 3.615%. Other tenors are yet to trade. Bond yields rise when prices fall.

"The size of ‌majority gives clarity ‍for Japan on the direction ahead: short term, markets adjust and ‍are assuming weaker yen and potentially higher yields across the ‌curve," said George Boubouras, head of research at K2 Asset Management.

"But once policies are lined up with the new massive majority, the yen should hold up again."

From a policymaking perspective, Takaichi's big win may be the best result for bond investors, because the LDP won't need to compromise with opposition parties targeting even deeper tax relief and broader fiscal stimulus.

The 30-year JGB yield surged to a ‍record 3.88% last month when Takaichi initially pledged to suspend the tax on food for two years, but has been well below that ‍for the past ⁠two weeks.

The yen eased ⁠as much as 0.3% to reach 203.30 per franc for the first time ever on Monday.

Japan's currency declined 0.4% to 186.55 per euro, putting it close to the record low of 186.86 from last month. It fell 0.5% to as low as 157.95 per U.S. dollar, a two-week trough.

For now, however, Japan's top currency diplomat Atsushi Mimura appears to have put a floor under the yen, saying the government is "closely watching currency movements with a high sense of urgency" in a warning about potential yen-buying intervention.

...moreless

...moreless