Tokyo Stock Market Surges as the Formation of the Japanese Ruling Coalition Boosts Confidence
The news of the formation of a ruling coalition in Japan has sparked excitement as conservative Liberal Democratic Party leader Sanae Takaichi is poised to become the first-ever female prime minister in Japan. This development led to a nearly 3% surge in the Nikkei Index on Monday, setting a new historical high. With the strong performance of the Japanese stock market, most Asian markets also saw positive movements.
Although Sanae Takaichi was elected as the leader of the Liberal Democratic Party in elections earlier this month, the subsequent announcement by the Komeito Party to end its 26-year political alliance with the Liberal Democratic Party has brought some uncertainty to her path to becoming prime minister.
On Sunday, the Liberal Democratic Party announced an alliance agreement with the right-wing party Nippon Ishin no Kai, eliminating the risk of the Liberal Democratic Party losing its governing power and further boosting the Tokyo stock market to reach new heights.
Members of the Nippon Ishin no Kai are expected to convene on Monday at 2:00 PM local time to discuss forming a coalition government with the Liberal Democratic Party. At 6:00 PM, Sanae Takaichi will hold a meeting with Nippon Ishin no Kai representative Hirofumi Yoshimura to formally sign the agreement for joint governance.
This agreement will give the two parties a combined total of 231 seats in the Lower House of the Diet. Although they are two seats short of a majority, it is enough to ensure Sanae’s victory in the prime minister nomination vote on the 21st.
In terms of market sentiment, Sanae Takaichi’s policy stance serves as a catalyst for optimism. Takaichi is known as a “fiscal dove,” advocating for increased spending and tax cuts to cushion the impact of inflation on consumers. She has also criticized the Bank of Japan’s decision to raise interest rates.
Nomura Securities strategist Fumika Shimizu stated, “Expectations for Sanae Takaichi’s economic policies, including fiscal expansion and monetary easing, appear to be driving stock prices higher and weakening the yen.”
On security matters, Sanae Takaichi takes a “security hawk” stance. She has called for amending Japan’s pacifist constitution to recognize the role of the military and has advocated for increased defense spending to deter the Chinese Communist Party.
The strong rally in the Japanese stock market has positively influenced Asian markets. As of 10:55 AM Taipei time on Monday, the Nikkei 225 Index rose by 2.92%, reaching 48,970.4 points, leading other Asian stocks to rise as well.
South Korea’s composite stock index increased by 1.22% to 3,794.58 points, while Hong Kong’s Hang Seng Index rose by 2.55% to 25,891.19 points. Taiwan’s Weighted Index rose by 1.28% to 27,652.98 points, and the Shanghai Composite Index increased by 0.87% to 3,873.29 points.
However, there are still pressures on the regional economic outlook. Data released by the Chinese authorities on Monday showed that the country’s GDP growth slowed to 4.8% year-on-year in the third quarter, the slowest pace in a year and a decrease from 5.2% in the previous quarter. Fixed-asset investment unexpectedly turned negative at -0.5% in the first nine months of this year, while real estate investment saw a larger decline at -13.9%, dragging down household wealth and consumption. The overall CPI decreased by 0.3% YoY, indicating persistent deflationary pressures and ongoing downward economic challenges.
Influenced by the progress in the Japanese political situation and expectations of global central bank rate cuts, futures for European and American stock indices have also been on the rise. European major stock index futures are generally higher, with Euro Stoxx 50 futures up by 0.6%, Germany’s DAX futures rising by 0.6%, and the UK’s FTSE 100 futures up by 0.2%.
Data expected to be released on Friday will show that core inflation in the United States remained at 3.1% in September. However, markets believe that this will not alter the Federal Reserve’s path towards cutting interest rates.
JPMorgan economist Michael Feroli stated, “Chairman Powell has emphasized that signs of weakness in the job market are crucial in the Fed’s policy considerations.”
“This confirms the widespread expectation that the Federal Open Market Committee (FOMC) will cut rates again at its next meeting in two weeks,” he added.
Observers will also closely monitor the performance of companies during the ongoing earnings season. According to LSEG IBES data, S&P 500 component companies are expected to see an 8.8% growth in third-quarter overall earnings year-on-year. With current elevated valuations, strong performance is needed to justify stock prices.
Companies set to report earnings this week include Tesla, Ford, General Motors, Netflix, Procter & Gamble, Coca-Cola, aerospace and defense giant RTX, technology leaders IBM and Intel, among others.
In the UK, several major banks are set to announce their earnings, while German software giant SAP is attracting significant attention as well.