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Japan’s markets have just crowned a new favourite — and it’s not a company, it’s a woman.
Stocks hit record highs on Monday after conservative Sanae Takaichi took the helm of the ruling Liberal Democratic Party, setting her up to be Japan’s first female prime minister.
The Nikkei 225 surged nearly 5%, surpassing 47,000 for the first time in its history, as investors expect Takaichi to double down on the “Abenomics” playbook.
Created by former prime minister Shinzo Abe, the pro-business vision favours generous economic stimulus and low interest rates.
Takaichi has also made no secret of her admiration for former British prime minister Margaret Thatcher and her belief in aggressive state spending to fuel private-sector growth.
Traders are betting that Takaichi will push big spending and keep the Bank of Japan from raising rates too quickly. The prospect of cheap money and government cash lifted stocks on Monday, but also sent the value of the yen sliding.
The currency tumbled to a record low against the euro and fell nearly 2% versus the dollar, a familiar consequence of Japan’s persistently loose monetary policy.
Exporters, real estate firms and defence contractors rallied, riding high on hopes that a weaker yen will boost overseas earnings.
A weak yen is… good?
When a country stimulates its economy but keeps interest rates lower than its peers, its currency tends to weaken, as people move their money to places where they can generate greater returns.
For Japan itself, a weaker yen is a mixed blessing. It makes exports cheaper abroad, helping carmakers, machinery and tech producers, as well as the tourism sector.
But it also makes imports more expensive, from oil to food — products that Japanese households and small businesses rely on. The price hikes can quietly squeeze living standards, especially when wages struggle to keep up.
For a country already battling decades of sluggish domestic demand, a soft currency can feel like a short-term sugar rush that could cause headaches in the future.
On the other hand, the yen’s fall can be extremely appealing for global investors as Japanese assets become relatively cheaper.
Adding to these considerations is the fact that Japan is one of the world’s biggest sources of capital, with its pension funds, insurance companies and banks investing trillions overseas.
When the yen weakens, those players can pull money back home or hedge their risks differently, disturbing global bond and currency markets.