"Abenomics Season 2 Anticipated, but Coalition Struggles Bring Temporary 'Opposite' Volatility"

With former Minister for Economic Security Sanae Takaichi, often referred to as the "female Abe," being elected as the new president of Japan's Liberal Democratic Party, expectations have risen for a weaker yen, a rise in stock prices, and higher interest rates compared to current levels. However, given the current difficulties in forming a coalition government and the resulting political instability, there are observations that "volatility in the opposite direction" could temporarily take hold.

Sanae Takaichi, New President of Japan's Liberal Democratic Party AP Yonhap News

Moon Namjung, a researcher at Daishin Securities, stated in a weekly Japanese market report titled "Abenomics Season 2 Begins" on October 13, "Although a prime ministerial nomination election is scheduled through an extraordinary Diet session in mid-October, the formation of a coalition between the Liberal Democratic Party and the Komeito Party is facing difficulties, as the Komeito Party is demanding the full acceptance of its proposed political funding reform bill."

As a result, the extraordinary Diet session originally scheduled for October 15 may be postponed to around October 21. The launch of the Takaichi cabinet is also expected to be delayed. Researcher Moon assessed, "Ultimately, I expect the coalition between the Liberal Democratic Party and the Komeito Party to be maintained, but the political instability that has emerged during this process will temporarily create volatility in the opposite direction to the current trends in the financial markets, such as the weaker yen, rising stock prices, and higher interest rates."

Following Takaichi's election as party president, the yen-dollar exchange rate surged to the 153 yen per dollar range as of October 9, marking the highest level since February this year. This indicates a sharp drop in the value of the yen. The TOPIX index in the Japanese stock market soared, and upward pressure on the yield of 10-year Japanese government bonds has also intensified.

Researcher Moon commented, "As volatility in the foreign exchange market has increased due to the excessive decline in the yen's value, the new president Takaichi has sought to reassure the market by stating she does not intend to induce a weaker yen." He added, "However, with the Bank of Japan's monetary policy decision scheduled for October 29-30, unlike Governor Kazuo Ueda, who has reaffirmed a stance of raising interest rates, the appointment of President Takaichi is a factor that could force the Bank of Japan to delay the timing of a rate hike."

Meanwhile, the Japanese stock market is closed on Monday, October 13, in observance of National Sports Day. On October 15, indicators such as August industrial production and capacity utilization are scheduled to be released. The market expects these indicators to show negative effects due to the impact of high U.S. tariffs and sluggish production in sectors such as automobiles.

This content was produced with the assistance of AI translation services.