Japan’s Topix stock gauge hit a new record high on Monday, while the yen fell and bonds remained firm after Prime Minister Shigeru Shiba resigned. This fueled speculation that his successor would increase government spending.
The Topix index jumped by as much as 1,2% to a record 3,142. The Nikkei index of blue-chip shares rose 1.5% to reach 43,674.95, which is near its record. The yen weakened 0.7% to 148.36 against the U.S. Dollar.
The yield on the benchmark Japanese Government Bond (JGB) of 10 years was unchanged at 1.57%. The yield on the five-year bond fell 1 basis point, to 1.095%.
The yields on JGBs that are super-long hovered at record levels due to concerns over fiscal deficits around the world and increased pressure on Ishiba within his Liberal Democratic Party.
Sanae Takaichi is one of the top candidates in the LDP’s leadership race. She is a fan of Shinzo Abe, Japan’s former Prime Minister and longtime leader, who was responsible for massive stimulus measures and unprecedented monetary ease.
Takeshi Yamaguchi and Morgan Stanley analysts wrote that “Sanae Takaichi’s strong fiscal expansionist bias could be seen as more positive” for Japanese equities.
The risk that she will adopt a dovish monetary policies is lower this year than it was last year.
Takaichi is a bad news story for Japan’s already-stressed bond market.
Skye Masters of National Australia Bank’s Market Research Department said that she was known to favor stimulus measures, and to want the Bank of Japan to adopt a conservative stance. This would not be good for bond markets.
The 30-year JGB yield hit an all-time record of 3.285% last week. Meanwhile, the 10-year JGB yield was at 1.64%. This is the highest yield since July 2008.
The Nikkei Index had 200 advancing members and 24 declining members. Mazda Motor Corp., with a 6.1% increase, and chip designer Socionext, with a 7.6% gain, were the two biggest gainers. Mitsubishi Heavy Industries, which will benefit from an increase in defense spending, was third, with a 4.4% gain.
Advantest Group and SoftBank Group are two of the largest beneficiaries of Artificial Intelligence (AI) investments in Japan. Both stocks have risen by more than 3.5 percent.
Ishiba’s relatively conservative fiscal position has been viewed as a positive by the JGB markets, where global yields are low, even though Japan’s massive debt and growing fiscal deficits continue raising concerns.
The outstanding debt of the country is nearly 250% its Gross Domestic Product (GDP), making it the highest among developed countries. The finance ministry announced last week that budget requests for the upcoming fiscal year have reached a record level for the third consecutive year.
Mid-July, Ishiba’s coalition was beaten badly in the upper house elections. Outside parties that campaigned on tax reductions and increased spending gained seats. For weeks, speculation circulated about Ishiba’s resignation.
All of this culminated on Sunday when Ishiba said he had to take responsibility for the election losses, and instructed the LDP that an emergency leadership vote would be held.
The Nikkei index reached a new record of 43,876.42 in August 19th riding on a wave optimism about corporate governance reforms.
A poll of analysts predicts that the index will drop to 42,000 at year’s end.
(source: Reuters)
AloJapan.com