Japan’s Nikkei closes at record highs, benchmark JGBs ahead of Takaichi PM vote

Japan’s Nikkei stock index rose to a record high on Monday as budget expansionist Sanae Takaichi was poised to become the country’s next prime minister with a new political coalition.

The Nikkei 225 index rose 3.4% to close at a record 49,185.50. The broader Topix rose 2.5%. Japanese government bonds fell, causing interest rates to rise.

The Nikkei hit record levels earlier this month after Takaichi won a runoff to lead the ruling Liberal Democratic Party. But after a split with an old coalition party, Takaichi and the LDP last week sought a new partner in the right-leaning Japan Innovation Party, known as Ishin.

That paid off on Monday, when Ishin’s leadership said it would formalize a coalition with the LDP and vote for Takaichi in a parliamentary vote on Tuesday.

“It seems unlikely that the rest of the opposition will unite around an alternative candidate, clearing Takaichi’s path to the premiership,” Taylor Nugent, senior economist at National Australia Bank, said in a note.

There were 217 advances on the Nikkei against seven decliners. The biggest percentage gainers were tech heavyweight SoftBank Group, up 8.5%, followed by industrial robot makers Yaskawa Electric and Fanuc, which rose 7.2% and 6.5% respectively. “The Nikkei average was pushed up significantly on expectations that the Takaichi government will come to power,” said Fumika Shimizu, strategist at Nomura Securities. “The next target level (for the Nikkei) would probably be the psychological threshold of about 50,000.”

The JGBs have been volatile since fiscally hawkish Shigeru Ishiba announced his resignation as prime minister last month, leaving Takaichi, a supporter of late Prime Minister Shinzo Abe’s “Abenomics” stimulus policies, poised to succeed him.

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

“If anything, financial market participants might hope for a little too much on the economic policy front,” Matsuo wrote in a note. Shorter-term government bond yields, which are the most sensitive to Bank of Japan policy, rose further after central bank board member Hajime Takata reiterated his call for a resumption of rate hikes.

The five-year yield rose 5 basis points (bps) to 1.24%, matching the October 10 level, which was the highest since 2008. The ten-year yield rose 4.5 basis points to 1.670%.

But super-long bonds received support, with the 30-year yield falling 0.5 bp to 3.115% and the 40-year yield falling 1.5 bp to 3.405%.

The biggest loser on the Nikkei was Ryohin Keikaku, which fell 2.5% after store operator Muji said it was shutting down its online shopping operations due to a cyberattack on a logistics provider.

(Editing by Subhranshu Sahu, Sherry Jacob-Phillips and Harikrishan Nair)