The Japanese stock market surpassed the 49,000 mark for the first time ever. This milestone was driven by the expectation that Takashi Sanae of the ruling Liberal Democratic Party, who has formed an alliance with Japan Restoration Party, would become the next Prime Minister, thereby reducing political uncertainty and boosting hopes for economic stimulus.
On the 20th, Japan’s main stock index, the Nikkei 225, closed at 49,185, up by 3.37% from the previous trading day, breaking the 49,000 mark for the first time. Additionally, 90% of the stocks in the Tokyo Stock Exchange’s Prime market, which focuses on large-cap companies, saw an increase. The TOPIX index, which reflects the broader market, also rose by 2.5% to close at 3,248.45, nearing the record high of 3,264.29 set earlier this month.
In the morning, Hirofumi Yoshimura, leader of the Japan Restoration Party, announced plans to form a coalition government with the Liberal Democratic Party, paving the way for Japan’s first female Prime Minister to be named in the election to be held on the 21st. Takashi, who is often referred to as the ‘female Abe’ for her support of former Prime Minister Shinzo Abe’s monetary easing policies, also promised to increase government spending on defense, technology, cyber security, and nuclear energy during the LDP leadership election. Reuters reported that while Takashi is expected to support economic stimulus measures, she is likely against further interest rate cuts, which could be burdensome for bonds and the yen but positive for stocks.
The easing of political uncertainty also attracted foreign investment. The Nikkei newspaper described the day as “the reacceleration of Takashi trade,” meaning that expectations for her economic policies (monetary easing and fiscal expansion) have revived investment sentiment. The newspaper stated that “with political uncertainty retreating, the preference for risky assets has spread,” and noted that the Nikkei index is approaching the upper end of brokerage firms’ year-end bullish forecasts, aiming for the 50,000 mark.
However, concerns about market overheating were also expressed. Hikaru Yasuda, chief strategist at SMBC Nikko Securities, warned that the market’s upward trajectory could be disrupted if any of the three main pillars—domestic political stability, the U.S. economy, and the AI boom—fall short. Masatsugu Akutsu, chief strategist at Bank of America Securities, highlighted the upcoming release of the U.S. Consumer Price Index (CPI) on the 24th, predicting that if inflation rises faster than expected, it could shake expectations of interest rate cuts, leading to potential weakness in the U.S. stock market and others.
On the same day, other Asian stock markets also posted gains. For the first time, the Korean KOSPI surpassed the 3,800 mark, while Taiwan’s Taiex index reached a record high, driven by the strength of AI semiconductor stocks. China’s Shanghai Composite increased by 0.63%, and the Hang Seng Index rose by 2.42%, continuing their respective upward trends.