Tokyo stocks surged more than four percent to a record high Monday 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 rally in Tokyo was not matched in the rest of Asia, where markets were mixed following last week’s healthy advances and as investors keep tabs on lawmakers’ attempts to end a US government shutdown.
However, expectations that the Federal Reserve will cut interest rates again this month continue to provide support to risk assets, with the S&P 500 and Dow both hitting peaks along with bitcoin and gold.
After her victory Saturday, Takaichi pledged first to implement measures to address inflation and boost Japan’s economy, rural areas and primary industries such as farming and fisheries.
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 tumbled more than one percent to almost 150 per dollar, while it hit its lowest ever against the euro, sitting at 175.69 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 that the country’s already colossal debts will balloon further under Takaichi.
There were also gains in Singapore and Manila, but Hong Kong, Sydney and Seoul were all in the red. Shanghai is closed for a holiday.
Sentiment remains up, though, after bitcoin hit a new peak of $125,689 on Sunday.
Gold pushed past $3,924 and closer to $4,000 an ounce on Monday, with the US shutdown and expected rate cuts boosting its attractiveness.
London’s FTSE also ended last week at a record. US futures were all up.
The closure of parts of the government dragged into this week after senators voted for a fourth time to reject a funding fix proposed by President Donald Trump’s Republicans.
Federal agencies have been out of money since Wednesday — with a wide range of public services crippled — as a result of deadlocked talks in Congress on how to keep the lights on.
The row meant key jobs data that is used by the Fed to guide it on monetary policy was not released when it was due on Friday.
Still, observers say recent reports indicating the labour market is slowing would likely be enough to allow officials to cut rates at the next meeting at the end of the month, with other readings on inflation due beforehand.
“It’s still likely that the shutdown will end in relatively short order, allowing for the release of the September jobs report before the October (policy) meeting,” said economists at Bank of America.
“But even if the first print of September payrolls is solid, doves on the committee will likely point to the recent trend of downward revisions to make the case to keep cutting.
“And given (Fed chief Jerome) Powell’s recent dovish pivot, that argument is likely to carry the day.”
Oil jumped more than one percent, extending Friday’s gains, after OPEC+ agreed at the weekend to boost supplies by 137,000 barrels a day — less than initially expected.
– Key figures at around 0230 GMT –
Tokyo – Nikkei 225: UP 4.5 percent at 47,835.36 (break)
Hong Kong – Hang Seng Index: DOWN 0.5 percent at 26,995.12
Shanghai – Composite: Closed for a holiday
Dollar/yen: UP at 149.84 yen from 147.45 yen
Pound/dollar: DOWN at $1.3455 from $1.3482
Euro/pound: UP at 87.17 pence from 87.09 pence
Euro/dollar: DOWN at $1.1728 from $1.1742 on Friday
West Texas Intermediate: UP 1.5 percent at $61.78 per barrel
Brent North Sea Crude: UP 1.4 percent at $64.45 per barrel
New York – Dow: UP 0.5 percent at 46,758.28 points (close)
London – FTSE 100: UP 0.7 percent at 9,491.25 (close)
dan/tym
AloJapan.com