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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