By Kosaku Narioka
Japan's Nikkei Stock Average surged to a record high and the yen rebounded after Prime Minister Sanae Takaichi's election victory boosted expectations that she will pursue drastic fiscal changes to strengthen Japan's economy.
The Nikkei Stock Average closed 3.9% higher at an all-time high of 56363.94 on Monday after rising as much as 5.7% during the day.
Electronics, semiconductor and industrial stocks led the gains. Chip-testing equipment maker Advantest jumped 12%, SoftBank Group rose 6.3% and industrial giant Hitachi Ltd. climbed 8.4%.
Takaichi's Liberal Democratic Party won more than two-thirds of the lower-house seats in Japan's parliament, giving it its largest-ever majority.
The prime minister plans to step up defense and industrial spending, with a focus on artificial intelligence, quantum and nuclear fusion technologies, aerospace and shipbuilding among others, and draw up budgets for strategic projects over multiple years to drive long-term economic growth. She has also pledged to rely less on supplementary budgets and to lower the ratio of government debt relative to the country's gross domestic product.
"This (election victory) ensures that Prime Minister Sanae Takaichi will lead aggressive growth strategies," Masayuki Kubota, chief strategist at Rakuten Securities, said in a note.
He said Takaichi's proactive growth policies are expected to raise inflationary pressures and boost the need for stock investment as a hedge against inflation.
The Japanese yen strengthened against the dollar, and was recently trading at 156.50 yen to the greenback, compared with 157.21 yen late Friday in New York. The 10-year Japanese government bond yield rose 5.0 basis points to 2.280%.
"Worries over Japan fiscal profligacy are overdone given that growth comfortably exceeds borrowing costs," said Elias Haddad, global head of markets strategy at Brown Brothers Harriman. Japan's mix of loose fiscal policy and tighter monetary policy is positive for the yen, Haddad said.
Morningstar DBRS analysts said in a note that they expect Takaichi to advance the fiscal policy objectives she promised during the campaign, including a temporary suspension of the consumption tax on food items to ease household cost pressures.
"A key challenge for the Takaichi administration will be to maintain a constructive economic relationship with Beijing while balancing her aim to deepen ties with the United States and other regional allies," the analysts said.
Bilateral relations with China, one of Japan's largest trading partners, have deteriorated since Takaichi took office in October.
Write to Kosaku Narioka at kosaku.narioka@wsj.com
(END) Dow Jones Newswires
02-09-26 0246ET
