Tokyo: Nikkei closes at record high, benchmark JGBs slip ahead of Takaichi PM vote

JAPAN’S Nikkei share gauge surged to a record high on Monday (Oct 20) as fiscal expansionist Sanae Takaichi was set to become the country’s next prime minister with a new political coalition in place.

The Nikkei 225 Index jumped 3.4 per cent to close at a record 49,185.50. The broader Topix rose 2.5 per cent. Benchmark Japanese government bonds (JGBs) slid, sending yields higher.

The Nikkei hit record levels earlier this month after Takaichi won a run-off to lead the ruling Liberal Democratic Party (LDP). But, following a rift with a long-time coalition party, Takaichi and LDP last week sought a new partner in the right-leaning Japan Innovation Party, known as Ishin.

That bore fruit on Monday, with Ishin’s leadership saying it would formalise a coalition with the LDP and vote for Takaichi in a parliamentary vote on Tuesday.

“The rest of the opposition appears unlikely to unite around an alternative candidate, clearing Takaichi’s path to the prime ministership,” Taylor Nugent, senior economist at National Australia Bank, said in a note.

There were 217 advancers on the Nikkei against seven decliners.

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The largest percentage gainers were tech heavyweight SoftBank Group, up 8.5 per cent, followed by industrial robot makers Yaskawa Electric and Fanuc, which jumped 7.2 per cent and 6.5 per cent, respectively.

“The Nikkei average was significantly boosted by expectations that the Takaichi administration will take office,” said Nomura Securities strategist Fumika Shimizu. “The next target level (for the Nikkei) would likely be the psychological threshold of around 50,000.”

JGBs have been volatile since fiscally hawkish Shigeru Ishiba announced his resignation as prime minister last month, putting Takaichi, a devotee of the “Abenomics” stimulus policies of late premier Shinzo Abe, in line to succeed him.

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But cooperation from Ishin may be limited to support from outside of Takaichi’s cabinet, which could restrict the scope of her easing platform, according to Mizuho Securities senior market economist Yusuke Matsuo.

“Financial market participants might in any case be hoping for a little too much on the economic policy front,” Matsuo wrote in a note. Yields on shorter-term JGBs, those most sensitive to Bank of Japan policy, extended gains after central bank board member Hajime Takata reiterated his call for resuming interest rate hikes.

The five-year yield rose 5 basis points (bps) to 1.24 per cent, matching a level reached on Oct 10 that was the highest since 2008. The 10-year yield rose 4.5 bps to 1.67 per cent.

But super-long bonds were supported, with the 30-year yield edging 0.5 bp lower to 3.115 per cent and the 40-year yield falling 1.5 bps to 3.405 per cent.

The biggest loser on the Nikkei was Ryohin Keikaku, which slid 2.5 per cent after the Muji store operator said it was suspending its online shopping operations due to a cyberattack at a logistics handler.