‘Japan’s Thatcher’ drives stocks to record high after signalling snap election

Core Viewpoint - The Japanese stock market has reached a record high, driven by investor optimism regarding Prime Minister Sanae Takaichi's potential election victory and her plans for economic stimulus [1][5]. Group 1: Stock Market and Economic Outlook - The stock market has surged 1.5% to a new record high, with an overall increase of nearly 8% since the beginning of the year, including a 4.6% rise following speculation of an early election starting January 8 [6]. - Investors are engaging in the "Takaichi trade," anticipating that her election win will lead to increased government spending or tax cuts to stimulate the economy [1]. Group 2: Fiscal Policy and Debt Concerns - Bond and currency investors are cautious, concerned that new fiscal stimulus could exacerbate Japan's already high public debt, which had a debt-to-GDP ratio of 232% last year, although it has been decreasing since 2020 [2]. - The yield on Japan's benchmark 10-year government bond rose to 2.19%, the highest since 1999, while the 30-year bond yield reached a record 3.51% [2]. Group 3: Political Landscape and Challenges - Takaichi's leadership is characterized by a hardline stance on national security and a preference for lower interest rates and relaxed budget constraints [3]. - Despite her popularity in opinion polls, the Liberal Democratic Party (LDP) is polling lower and has faced challenges with its coalition partner, Komeito, raising doubts about her ability to secure parliamentary support for her economic policies [7].