Japan's stocks zoom, yen slumps as Takaichi win dims BOJ hike bets

Core Viewpoint - Japanese shares reached a record high following the near-confirmation of Sanae Takaichi as the next premier, which fueled expectations for increased government spending and a continuation of loose monetary policy [1][2]. Market Performance - The Nikkei 225 Index surged 4.75% to close at 47,944.76, with intraday trading peaking at 48,150.04, surpassing three significant thousand-point barriers for the first time [1]. - The broader Topix index increased by 3.1% [1]. Bond Market Dynamics - The yield on the 30-year Japanese government bond (JGB) reached a record high, while the yield on the two-year note decreased, indicating expectations of future rate hikes by the Bank of Japan [2][5]. - Yields on two-, five-, and ten-year JGBs hit levels not seen since the 2008 financial crisis, driven by speculation that the Bank of Japan might raise rates in the upcoming meeting [5]. Currency Movements - The yen depreciated nearly 2% against the dollar and reached an all-time low against the euro [2]. Political Context - Takaichi is viewed as having the most aggressive fiscal and monetary policy agenda among the candidates in the Liberal Democratic Party (LDP) leadership race [2]. - The market reacted positively to Takaichi's anticipated spending policies, although there are uncertainties regarding her ability to implement these plans due to the LDP's minority status [3]. Investment Strategies - A "Takaichi trade" emerged, characterized by long positions in stocks and bearish positions on Japanese government bonds, particularly longer maturities, in anticipation of her victory [4]. - The market had initially positioned itself for a win by Shinjiro Koizumi, who was perceived as more laissez-faire regarding monetary policy, leading to a need for adjustments in market positions following Takaichi's win [6].