Japan stocks surge to record, bonds slide with yen on Takaichi’s landslide election win

TOKYO – Japanese stocks swept to record peaks while bonds slid and the yen sagged to an all-time low against the Swiss franc after Prime Minister Sanae Takaichi scored a landslide win in Sunday’s snap election.

Takaichi’s Liberal Democratic Party won 316 of the 465 seats in parliament’s lower house, giving her the mandate to push through her big spending plans and promised tax relief without negotiating with other parties. The so-called supermajority also allows the LDP to pass legislation without upper house approval.

The Nikkei 225 share average rallied 5.7% to an unprecedented 57,337.07 by 0146 GMT. Of its 225 components, 197 rose while the rest fell, underscoring the breadth of the upsurge.

The broader Topix jumped as much as 3.4% to a record 3,825.67.

Heavyweight chip-testing equipment maker Advantest, a supplier to Nvidia, vaulted more than 13% to be the Nikkei’s top performer, leading a rally among shares linked to artificial intelligence.

The market “sees greater momentum for Prime Minister Takaichi’s policy agenda,” particularly her fiscal policy, said Shingo Ide, chief equity strategist at NLI Research Institute.

“It’s not just a stable administration – What’s coming into view is the prospect of a long-term administration.”

For the Nikkei though, “I don’t think it will keep rising at this pace. If it were to shoot straight to 60,000, that would be a bit overdone,” Ide said, adding that it may eventually “settle down” around 56,000.

ELECTION MANDATE PUTS SHARP FOCUS ON FISCAL PLAN

Japanese government bond yields rose, with short-term yields reaching a three-decade peak. But the longest-dated bonds, which are most sensitive to fiscal worries, were little changed on the day after erasing an initial spike higher in yield.

Bond yields move inversely to prices.

Two-year JGB yields climbed 2.5 basis points (bps) to the highest since May 1996 at 1.3%, and 10-year yields jumped 4 bps to 2.27%.

Thirty-year JGB yields climbed as much as 6.5 bps to 3.615%, but were last down 0.5 bp at 3.545%.

“I think the reaction indicates that Takaichi has successfully convinced the market that she will be a strong leader, but not be a fiscally irresponsible one,” said Zuhair Khan, a senior portfolio manager at UBP.

“But we will have to wait and see.”

From a policymaking perspective, Takaichi’s big win may be the best result for bond investors, because the LDP won’t need to compromise with opposition parties targeting even deeper tax relief and broader fiscal stimulus.

The 30-year JGB yield surged to a record 3.88% last month when Takaichi initially pledged to suspend the tax on food for two years, but has been well below that for the past two weeks.

The yen also eased in early trading, but rebounded strongly after Japan’s top currency diplomat Atsushi Mimura said the government is “closely watching currency movements with a high sense of urgency” in a warning about potential yen-buying intervention.

From being down as much as 0.3% to reach 203.30 yen per franc for the first time ever on Monday, the Japanese currency reversed direction to be up 0.4% at 201.90.

The yen had declined 0.4% to 186.55 per euro, putting it close to the record low of 186.86 from last month, but was last changing hands at 185.22 per euro, up 0.3%.

It fell 0.5% to as low as 157.95 per US dollar, a two-week trough, before rebounding to be 0.3% stronger at 156.65.

“The market has long been mindful that further yen weakness could invite intervention,” said Kumiko Ishikawa, senior analyst at Sony Financial Group.

After substantial yen declines last week amid expectations of a Takaichi victory, “the topside was already heavy” in the dollar-yen pair, she said. “Then Mimura’s verbal intervention came in and nudged the level lower.”

(Reporting by Kevin Buckland; Editing by Jamie Freed and Shri Navaratnam)