(Bloomberg) — Japanese stocks fell after Shigeru Ishiba’s surprise victory in the ruling party’s leadership race against Sane Takaichi misled investors who had bet on him being discouraged by a big cash boost from his rival.
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The Nikkei 225 stock average fell as much as 4.7% in early trade, as Ishiba’s election forced investors on speculation that Japan’s new prime minister will be and encourage the Bank to cut interest rates. The yen was down 0.3% at 142.68 per dollar after rising 1.8% on Friday, while 10-year bond futures for December delivery were down 0.70 at 144.52.
“It’s not surprising how much the market has been bullish on the hope that Takaichi will win over the past several sessions today’s fall,” said Kohei Onishi, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities Co.
“This will be a temporary measure. Investors are buying Japanese stocks on hopes of inflation, rising wages and market reforms, not BOJ easing. The market will refocus on fundamentals.
Ishiba called for more clarity on the BOJ’s plans to normalize policy, and urged more growth in regional economies to tackle depopulation in rural areas, aided by government spending. But he has generally been in favor of the bank continuing its path away from ultra-low rates, in contrast to Takaichi, who has characterized further rate hikes as “foolish”.
Kyodo News reported that Katsunobu Kato is set to become the next finance minister, a move seen as a move to assuage concerns that Ishiba might seriously reverse some of the policies mirroring former Prime Minister Shinzo Abe, as Kato was a supporter of Abenomics.
According to analysts, until there is more clarity around Ishiba’s policies, investors are poised for increased near-term volatility. NHK reported that Ishiba may call for a general election on October 27.
“The start of the week will be volatile,” said Rina Oshimo, strategist at Okasan Securities Co. in Tokyo. “With Ishiba advocating fiscal consolidation and other measures, the yen’s appreciation could turn into a headwind for Japanese stocks.”
Exporters were more bullish on the topics as a stronger yen dimmed the outlook for profits. Banks, which sank last week on speculation that Takaichi would win, rose on Monday.
Race for BOJ hike after Ishiba’s LTP win, analysts say
When Prime Minister Fumio Kishida took office in 2021, his proposals to raise taxes on capital gains caused a decline in the Nikkei 225, dubbed the “Kishida shock.” He quickly backtracked on the project, offering market relief. The gauge hit a record high earlier this year, helped by a weaker yen, optimism over corporate governance reforms and the endorsement of Warren Buffett.
But Japanese stocks became the focus of a global rout after the BOJ’s rate hike in August sparked a rally in the yen. Although stocks have recovered some of their losses since then, the market remains vulnerable to moves in the yen. Ishiba also advocated supporting Japan’s rural economy.
“Domestic stocks, particularly those that will benefit from regional revitalization measures, will be preferred,” said Hirofumi Kasai, senior strategist at Tokyo Marine Asset Management. “The overall direction of inflation remains unchanged.”
Morgan Stanley MUFG Securities Co. recommends investors focus on domestic demand stocks until concerns over growing corporate tax burdens subside. Goldman Sachs Group Inc. said volatility will continue in the short term until Ishiba clarifies its position on “areas of investor concern such as corporate governance reform and tax rates on financial asset income.” warns.
Japan’s parliament is expected to confirm Ishiba, 67, as prime minister in a vote on October 1. Investors’ attention will turn to the general election, economic data and the US election.
–With the help of Aya Wakatsuma.
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2024-09-30 06:46:53