Japan’s Topix stock gauge hit a new record high on Monday, as the yen fell and bonds with longer maturities fell after Prime Minister Shigeru Shiba’s resignation fuelled speculation that his successor would increase government spending.
The Topix index jumped by as much as 1,3% to a record 3,146.58. The Nikkei index of blue-chip shares rose 1.45% to reach 43,643.81, a record close. The yen weakened 0.4%, to 148 against the U.S. Dollar.
The yields on Japanese government bonds (JGBs), which were initially resilient, then fell in the late afternoon session drove them higher. The yield on the 20-year bond rose by 3.5 basis point to 2.67%. Meanwhile, the yield on the 30-year bond jumped by 6 basis points, to 3.285%. This is the same as the previous week’s all-time record.
The yields on JGBs with long maturities have risen in recent months due to concerns over fiscal deficits around the world and 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 perceived more positively for Japanese equities.”
The risk that she will adopt a dovish monetary policies is lower this year than it was last year.
Takaichi is viewed as bad news by many for Japan’s already stressed bonds market.
Skye Masters of National Australia Bank’s Markets Research 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.
Money markets show that the BOJ is now about 20% likely to raise its key interest rate before the end of October. This is down from 46% odds just a week earlier.
The Nikkei Index had 197 advancing stocks and 26 declining ones. The biggest gainers on the Nikkei index were chip designer Socionext, up 8%. Mazda Motor Corp., who jumped 7.2%, was second.
Mitsubishi Heavy Industries, a company that stands to benefit from an increase in defense spending, grew by 3.3%.
Advantest Group and SoftBank Group are two of the largest beneficiaries of Artificial Intelligence (AI) investments in Japan. They jumped by 4.4% and 2.0%, respectively.
Ishiba’s relatively conservative fiscal position has been seen as positive for the JGB markets, where yields have been relatively low worldwide, 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 fiscal year ahead 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