Japanese stocks hit record highs on Monday as the “Takaichi trade” fueled gains in defense and tech-related sectors.
Prime Minister Sanae Takaichi’s strong showing in Sunday’s election effectively gives her four years to pursue expansive stimulus measures like tax cuts without facing legislative resistance.
Weapons-makers’ stocks rallied on expectations of looser export restrictions and plans for a possible revision to Japan’s pacifist constitution, furthering momentum for Asian defense firms.
But just as traders signaled enthusiasm for Takaichi’s policies, the market will also “set an important constraint here,” HSBC’s chief Asia economist said. Given Japan’s heavy debt burden, she will have limited room to run up deficits, lest bonds and the yen come under pressure.
