HONG KONG: Tokyo stocks surged almost 5 per cent to a record high on Monday (Oct 6) and the yen sank on bets that the new leader of Japan’s ruling party will embark on a new era of loose monetary policy to kickstart the country’s economy
News of the victory for Sanae Takaichi – who is expected to become prime minister this month – fanned a fresh wave of optimism on Japanese trading floors as she has previously backed aggressive monetary easing and expanded government spending.
But the rest of Asia was mixed following last week’s healthy advances and as investors keep tabs on a United States government shutdown.
However, expectations that the Federal Reserve will cut interest rates this month continue to support risk assets, with the S&P 500 and Dow both hitting peaks along with bitcoin and gold.
After her victory on Saturday, Takaichi pledged first to implement measures to address inflation and boost Japan’s economy, rural areas and primary industries.
Takaichi “looks more inclined than the others to juice the economy”, said Taro Kimura at Bloomberg Economics.
“Still, with inflation rising and long-term (bond) yields climbing, she will have to balance her stance with reality, in order not to accelerate cost-of-living squeeze and jolt the rate market,” Kimura added.
The Nikkei 225’s surge came as the yen weakened more than 1 per cent to top 150 per dollar, while it hit a record low against the euro, touching 176.25 to the single currency.
“An immediate market reaction is likely to be a return of a so-called ‘Takaichi trade’, which means higher equity prices (except banks), yen depreciation, and higher super-long bond yields,” said Masamichi Adachi, UBS Securities chief economist for Japan.
Yields on 30-year Japanese bonds also rose sharply, reflecting fears the country’s already colossal debt will balloon further.
Takaichi’s win also raised questions about the chances of more Bank of Japan rate hikes, adding to downward pressure on the yen.
There were also gains in Singapore and Mumbai, but Hong Kong, Sydney, Wellington, Manila and Bangkok were all in the red.
Source: CNA
