Possible new leader of Japan Sacode Iene and takes Nikkei to record

The almost certain rise of the Sanae Takaichi Pro-Stimulus parliamentarian as Prime Minister of Japan stirred the financial markets on Monday (6), with IENE and long-term securities falling and actions renewing historical maximums.

Takaichi’s surprising victory in the Liberal Democratic Party’s leadership election (PLD) over the weekend has reduced expectations that Banco do Japan (Boj) raises interest rates this month and increased concerns about a possible increase in debt emission to finance stimuli.

“The election of Takaichi as leader of Japan’s ruling party is being seen as a clear positive signal to risk assets,” said Dilin Wu, a strategist at Peppersstone Group Ltd. “Investors are balancing the potential of fiscal stimulus at the risk in the title market and quickly adjusting their positions to deal with exchange rate fluctuations.”

The yen fell 1.8% against the dollar, exceeding the 150 mark, and reached a new historical minimum compared to the euro. Long -term titles have retreated with the fear that Takaichi policies require more public spending and accelerate inflation. The 40-year-old role yield rose up to 17 base points to 3.55%, while the 10-year-old securities reached 1.68%, the highest level since 2008.

Already the income of the two-year titles followed in the opposite direction, falling 4 base points, to 0.9%.

Operators quickly reduced bets on an increase in interest by Boj at the October 29th and 30th meeting. Overnight index swap contracts were pricked about 24% raising a chance, compared to 60% before PLD vote.

“Sanae Takaichi’s unexpected victory in the PLD leadership disputes an important inflection point for Japan’s politics and markets,” wrote Société Générale strategists in a statement, postponing the BOJ’s high interest rates from October to December.

“Their statements do not indicate immediate or large -scale tax expansion, but their orientation and history suggest the willingness to use tax instruments actively to support growth if necessary,” they added.

“The devaluation of the yen was wide, with the euro/yen reaching historical record and the Japanese currency returning to the lowest levels in terms of trade. Exchange operators are aware of a possible verbal intervention of Japanese authorities to contain the fall,” explains Mark Cranfield, Bloomberg market strategist.

Expectations of new tax stimuli boosted the scholarship, and the Nikkei 225 index closed up 4.8%, reaching a new record. The actions of exporters, as automakers, rose with the weakening of the yen. Manufacturers of defense equipment and builders have also advanced with the perspective that Takaichi, known for his nationalist profile, favors spending on these areas.

Shares aimed at the domestic market and lower capitalization companies can benefit from growth expectations, but banks – which came up with the possibility of high interest rates – tend to face difficulties, said Richard Kaye, a strategist of Japanese actions at Comgest Asset Management.

Takaichi should become the first woman to hold the position of Premier in Japan after winning the PLD’s internal election on Saturday. The market expected the post to be for Shinjiro Koizumi, seen as the most cautiously fiscal and inclined to allow Boj to follow the normalization of monetary policy.

Even before Takaichi’s victory, title investors were already cautious about the pressures for stimuli and opposition requests for tax cuts. The sale of 30-year titles scheduled for Tuesday is seen as an investor appetite test.

“The title market will want to see if Takaichi’s pro-action strategies do not expand the public deficit,” said Pelham Smithers, director of British consultancy Pelham Smithers Associates. “Otherwise, this can also stimulate new yen sales. On the other hand, Japanese currency advocates can argue that Boj will compensate for a possible fiscal increase with more aggressive monetary tightening.”

Takaichi, who last year classified as “stupid” the idea of ​​raising interest during the PLD lead, adopted a more moderate tone this time. In a recent survey by Kyodo agency, however, she reiterated that Boj should keep unchanged rates for now.

“Although it was not as evident as in the past election, the market understands that the tax discipline should loosen and that it will show little willing to support interest highs by Boj,” said Katsutoshi Inadome, senior strategist at Sumitomo Mitsui Trust Asset Management. “Betting on an increase in October tend to retreat.”

In the stock market, sectors such as Artificial Intelligence, Technology and Industry can benefit from Takaichi’s interest in strategic investments in these areas, said Anna Wu, a strategist at Vaneck Australia. The automotive sector can also be favored if it renegotes the terms of the Japan-EUA trade agreement and seek greater clarity or concessions to the segment, he added.

Takaichi should be elected Prime Minister in Parliamentary Voting later this month. The attention now turns to the formation of the new office and the PLD relationship with the opposition.

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