Japan¡¯s stock market will likely get support while the yen and long-term government bonds come under pressure following the surprise victory of pro-stimulus Sanae Takaichi in the Liberal Democratic Party¡¯s leadership election.
That¡¯s the view from investors and strategists including Pepperstone Group and Nomura Securities, who expect the yield curve to steepen. The ascent of Takaichi, a proponent of easy fiscal and monetary policy, will likely raise concern over rising bond supplies while reducing expectations of a Bank of Japan rate hike later this month.
This was ¡°very much a surprise result¡± and not the one that markets had been discounting, said Michael Brown, a senior research strategist at Pepperstone. Takaichi¡¯s win is ¡°likely to be yen negative, on the dovish BOJ repricing, coupled with a steeper JGB curve given her looser fiscal views, though both of those combined should be a boost for the Nikkei.¡±
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