Veriton Investment

Japan Stocks Hit New Highs as Takaichi Win Fuels Spending Hopes

(Bloomberg) -- Japanese stocks surged to fresh highs as Prime Minister Sanae Takaichi’s historic win in Sunday’s election ignited expectations of more government spending in key industries.

The Nikkei 225 benchmark gained 3.9% to close at a record-high of 56,363.94 in Tokyo, with the broader Topix also rising 2.3% to a new peak of 3,783.57. Tech and machinery sectors led the climb, with some chip-gear makers rising over 10%.

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Takaichi’s ruling coalition secured an overwhelming majority in Sunday’s lower-house vote, giving her a clear mandate to pursue fiscal expansionary policies that have already driven Japanese stocks to all-time highs. Sectors seen benefiting from her “strategic” spending plans, including AI, semiconductors, quantum computing and defense, have powered the climb and were among Monday’s best performers.

Takaichi’s win “far surpassed” initial expectations, and “has the potential to open the floodgates on her expansionary policies,” wrote Andrew Jackson, head of Japan equity strategy at Ortus Advisors, in a note. He expects upside for defense-related stocks, as Takaichi has pledged to increase security spending, along with space-related names.

Financial stocks will also win out due to higher long-term bond yields, he added, while food-linked shares may benefit from Takaichi’s election promise of a temporary cut to the consumption tax on food.

Defense manufacturers Mitsubishi Heavy Industries Ltd., IHI Corp. and Kawasaki Heavy Industries Ltd. were all strong Monday, with Kawasaki Heavy soaring 16%, helped by better-than-expected earnings.

Cable makers Furukawa Electric Co. and Sumitomo Electric Industries Ltd. were also strong, while real estate and construction stocks, also expected to benefit from Takaichi’s policies, were among the Topix’s best performers.

The ruling Liberal Democratic Party’s “historic victory gives Prime Minister Takaichi a stable majority, reducing coalition constraints and enabling decisive action on fiscal stimulus, AI, semiconductors, energy security, and strategic reforms,” said Marc Jocum, senior investment strategist at Global X Management. “Markets now have a clear fiscal policy runway through 2028 until the next election.”

Expectations of political stability led JPMorgan Securities strategists to lift their year-end Nikkei target to 61,000 from 60,000 in a note released Monday morning.

Chip-gear maker Advantest Corp. was also among Monday’s top performers, climbing 12%. The prospect of more AI investment from big tech firms following Amazon.com Inc.’s earnings on Friday is an extra tailwind for Japan’s semiconductor sector “on top of the Takaichi upside,” said Jackson at Ortus.

--With assistance from Carmeli Argana.