The surge in Japanese stocks, triggered by Prime Minister Sanae Takaichi¡¯s snap election plans, may fade if she gets what she wants, as overspending drives up inflation and government borrowing costs.
The Topix index rose more than 4% this week in its strongest rally since July after reigniting the ¡°Takaichi trade¡± in which investors buy stocks on expectations of more government spending. Takaichi is gambling her party will win more seats and consolidate her power, giving her a freer hand to pursue pro-stimulus policies.
Investors think that Takaichi may emulate her mentor Shinzo Abe ¡ª Japan¡¯s longest-serving leader ¡ª whose stimulus-heavy Abenomics fueled asset prices. She has flagged areas such as artificial intelligence, semiconductors, defense, space and content industries as investment priorities.
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