Japan Stocks Surge After Takaichi Win; Long-Term Government Bond Yield Hits 17-Year High — 2nd Update

By Kosaku Narioka

The Japanese stock benchmark posted its biggest percentage gain in half a year and the long-term government bond yield hit a 17-year high after fiscal expansionist Sanae Takaichi won the leadership election of Japan's ruling party, raising hopes for more aggressive government spending to support the economy.

Among other priorities, Takaichi favors government spending to strengthen Japan's manufacturing economy and food security, as well as investing in nuclear energy, artificial intelligence and other high-tech sectors.

Takaichi, 64 years old, was elected leader of the ruling Liberal Democratic Party on Saturday, in a party poll after the resignation of her predecessor, Shigeru Ishiba, setting her up to be the country's first female prime minister.

Takaichi's election as the LDP's leader will generate plenty of noise, but the key question is what kind of leader she will be, said Stefan Angrick at Moody's Analytics. She has previously made unorthodox economic proposals, and some fear she might ramp up spending without addressing macroeconomic issues.

But Angrick said it is premature to assume so, adding that "the trajectory of Japan's economy will hinge on whether Takaichi's premiership is guided more by pragmatism or ideology."

Barclays chief Japan economist Naohiko Baba said the possibility of another BOJ rate increase this year has fallen, and that a rate increase at its meeting in January "seems the most reasonable at this point." Takaichi has said a shift to wage growth-driven inflation is necessary, and Baba expects the momentum of wage negotiations between unions and management for the next fiscal year can be largely assessed by then.

The benchmark Nikkei Stock Average on Monday rose 4.8% to 47944.76, its biggest percentage gain since April 10. Heavy-machinery and electronics stocks led gains. Mitsubishi Heavy Industries surged 11% and Sony Group soared 6.8%.

In other markets, the yen weakened sharply and short-term government bond yields dropped, reflecting the view that the Bank of Japan will be slower in raising rates, while superlong yields rose in anticipation of fiscal expansion.

The yen hit a two-month low of 150.44 to the dollar, compared with 147.45 late Friday in New York. The two-year government bond yield fell 4 basis points to 0.900%, while the 10-year yield reached 1.680%, its highest level since July 2008, and the 30-year yield rose 12 basis points to 3.270%.

Views remained split among economists over the BOJ's policy decision later this month. Takaichi is unlikely to prevent the central bank from raising interest rates, said Marcel Thieliant, head of Asia-Pacific at Capital Economics. "Any loosening of fiscal policy would strengthen the case for tighter monetary policy as it would create additional upward pressure on inflation," he said, projecting a quarter-point rate increase later this month.

Despite the yen's decline on Monday, Takaichi's pledge to boost investment in areas, including artificial intelligence and semiconductors, will likely help boost Japan's potential growth and eventually raise the value of the yen, Sony Financial analyst Maki Ogawa said. "What's important is how quickly Ms. Takaichi implements her campaign promises," she said.

--Ronnie Harui, Megumi Fujikawa and Megan Cheah contributed to this article.

Write to Kosaku Narioka at kosaku.narioka@wsj.com

(END) Dow Jones Newswires

October 06, 2025 04:46 ET (08:46 GMT)