Japanese stocks hit new highs again, Nomura: The key to Japanese stocks lies in how long Sanae Takaichi can hold on.

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Sanae Takaichi's Election Imminent as Japanese Stock Market Hits New Highs.

On October 21, Japanese stocks continued their strong momentum, opening up 1% at 49,675.43 points, once again setting a new historical high. The TOPIX also opened higher, approaching its historical peak.

The driving force in the market stems from strong investor expectations that the new Japanese government under Sanae Takaichi will maintain expansionary fiscal policies.

However, according to the latest analysis from Nomura Securities, this round of so-called "Takaichi Trade" is evolving, and its sustainability no longer depends solely on the scale of stimulus policies but relates more closely to the political stability of the new government. For investors, the core question has shifted from "what will happen" to "how long can it last."

The New Form of the "Takaichi Trade"

According to a report by Nomura Securities strategist Naka Matsuzawa released on October 20, market expectations for Sanae Takaichi are undergoing profound changes. The initial "Takaichi Trade" was based on simple expectations of reflationary policies, a weak yen, and export-oriented stocks benefiting as a result.

Now, however, this trading logic is evolving into a "new form." Nomura's report points out that the new market expectations are more based on hopes for a "stable government" and "structural economic reforms," shifting market attention to stocks related to domestic demand.

The "Takaichi Trade" is shifting from purely reflationary expectations to anticipation of stable governance and economic reform.

This shift means that the market's excitement is unlikely to continue indefinitely. The report argues that without large-scale reflationary measures, it will not be easy to continue supporting the current lofty stock valuations. The "celebratory mood" in the market may last until Sanae Takaichi's government is officially inaugurated and its cabinet lineup and economic policy outlines become clear.

Political Approval Ratings: The "Touchstone" for Stock Market Gains

As for whether the "new Takaichi Trade" can be sustained, Nomura Securities' report presents a key metric: political approval ratings. The report stresses that unless the government and the LDP's approval ratings remain high, it will be difficult to maintain upward momentum in stocks and stability in the bond market.

The report cited a poll conducted by Jiji Press from October 10 to 13. Results show that the expected approval rating for Sanae Takaichi's cabinet is 44%, much higher than her predecessors, indicating strong public expectations. However, support for the LDP itself is only 20%, remaining stagnant. Nomura concludes that currently the LDP lacks enough political momentum to immediately dissolve parliament and call a general election to seek an absolute majority.

Analyst Naka Matsuzawa believes a fragile government will tend to rely more on reflationary measures, undermining the foundation of the "new Takaichi Trade."

Therefore, as market enthusiasm fades and external factors (such as exchange rate volatility) begin to exert pressure, the resilience of stock prices will be the ultimate test of the real value of the "Takaichi Trade."

Cool-Headed Reflection Behind Market Enthusiasm

Amid the market's jubilant mood, some investment managers have expressed more cautious views.

There are doubts in the market about the new coalition government's stability and its ability to execute its policies. Some investors believe its ability to implement a large-scale expansion agenda will be constrained.

James Athey, an investment manager at Marlborough Asset Management, said that the shape of the new coalition government is not a "green light." Sanae Takaichi's ability to push forward a "large-scale expansion agenda faces significant political and economic constraints," and thus a marked second wave of the "Takaichi Trade" should not be expected.

Masayuki Murata, a fund manager at Sumitomo Life Insurance, also believes that the inclusion of the Japan Innovation Party will make Takaichi's economic policies "more balanced."

According to Xinhua News Agency on October 20, Japan's ruling LDP and the Japan Innovation Party held party leader talks and signed an agreement on October 20, formally reaching consensus on coalition governance. The Innovation Party confirmed that it would support the LDP's candidate, Sanae Takaichi, in the prime ministerial vote at the extraordinary parliamentary session convened on the 21st.

Risk Warning and DisclaimerThe market carries risks, and investment should be approached with caution. This article does not constitute personal investment advice, nor does it take into account the specific investment objectives, financial situation, or needs of any particular user. Users should consider whether any opinions, views, or conclusions in this article are appropriate to their individual circumstances. Investments made accordingly are at the investor's own risk. ```