What Sanae Takaichi’s rise means for Japan’s economy, foreign policy and markets

Nevin Al Sukari - Sana'a -  

TOKYO, Oct 4 — Sanae Takaichi is likely to be Japan’s first female prime minister after winning the race today to lead the ruling Liberal Democratic Party.

The former internal affairs minister, a conservative nationalist with an expansionary agenda, is expected to replace Prime Minister Shigeru Ishiba since the LDP is the largest in parliament.

Below are comments on the outcome:

TOHRU SASAKI, CHIEF STRATEGIST, FUKUOKA FINANCIAL GROUP AND FORMER BANK OF JAPAN OFFICIAL, TOKYO

“In the last speech between Koizumi and Takaichi, I think Takaichi was a bit better, so that was supportive of her victory. So it’s not a huge surprise.

“Takaichi was the most popular candidate among the non-congressional LDP members and that was a key factor for her victory.

“Because of the support from the non-congressional members of the LDP, her cabinet is likely to be very popular, and therefore influential on monetary policy. So I think the BOJ may have some difficulty in raising rates.

“I think on Monday morning, the yen is going to depreciate. Dollar-yen may try 150 or beyond, but these kind of reactions tend to be short-lived.

“In stocks the strong trend is likely to continue. It’s a bit difficult to say on the JGB market because Takaichi will make it difficult for the BOJ to raise rates, so yields will go lower, but at the same time, she’s likely to expand spending, which is negative for bonds. A steepening of yield curve is a possible reaction.

“Probably the financial market will take this result as a positive, at least at first.

“It will be interesting to see how her dialogue goes with Trump. She will probably be a tough negotiator.”

TOMOHISA ISHIKAWA, CHIEF ECONOMIST, THE JAPAN RESEARCH INSTITUTE, TOKYO

“Takaichi talked about ‘responsible expansionary fiscal policy.’ The question is whether this approach can achieve both restoring fiscal health and economic growth. I’d like to hope there’s greater consideration for restoring fiscal consolidation than in the past.

“That said, she has said that deficit-financed bonds are also among the options, so in terms of continuing Abenomics, I think we must also be mindful of the risk of fiscal expansion.

“I do think it’s become harder for the Bank of Japan to raise interest rates.

“Ultimately, if ‘responsible expansionary fiscal policy’ means money flows into high-growth sectors rather than simply being handed out, then stocks would rise and the yen wouldn’t weaken excessively.”

KAZUTAKA MAEDA, ECONOMIST, MEIJI YASUDA RESEARCH INSTITUTE, TOKYO

“Among the five candidates, Takaichi would represent the sharpest departure from fiscal hawk Prime Minister Shigeru Ishiba’s policies, which could be welcomed by equity markets given her stance on fiscal expansion.

“During the leadership race, Takaichi toned down her more radical proposals, including withdrawing her earlier suggestion to cut the consumption tax. However, if she were to revive such proposals in response to demands from major opposition parties, it could lead to higher interest rates, a weaker yen, and accelerated inflation - developments that may not help restore public trust.

“Overall, there is skepticism surrounding Takaichi’s ability to manage the administration effectively.

“On monetary policy, Takaichi is not seen as supportive of interest rate hikes, which could make it more difficult for the Bank of Japan to proceed with tightening. While rate hikes may not be ruled out entirely, the central bank could adopt a more cautious and gradual approach. Depending on inflation trends, the next rate hike may be delayed until early next year.”

MARI IWASHITA, EXECUTIVE RATES STRATEGIST, NOMURA SECURITIES

“(Bank of Japan) Governor (Kazuo) Ueda appeared to be in no rush to hike interest rates anyway. Takaichi’s win will make it even more likely the BOJ will take a wait-and-see mode and hold off raising rates in October. Until the political dust settles and there is more clarity on the new administration’s policy stance, there’s little reason for the BOJ to rock the boat with a rate hike.”

NAOYA HASEGAWA, CHIEF BOND STRATEGIST, OKASAN SECURITIES, TOKYO

“The chance of the Bank of Japan’s interest rate hike later this month has weakened. The market will initially react to the outcome of the LDP election by buying bonds with mid-term maturities and selling super-long dated bonds. So the curve will steepen.

“The market saw a more than 60% chance for the BOJ’s rate hike to 0.75% until now, but that will fall to below 50% next week.

“The market’s expectations for the BOJ’s interest rate hike had risen lately as the market priced in Koizumi’s win, and a hawkish message from BOJ board member (Asahi) Noguchi.”

TOSHINOBU CHIBA, FUND MANAGER, SIMPLEX ASSET MANAGEMENT, TOKYO

“This is really surprising. I think we’ll see the yen depreciate and a twist steepening of the JGB yield curve. And we have to see what her policy details are.”

YUKA HAYASHI, VICE PRESIDENT, THE ASIA GROUP, WASHINGTON, D.C.

“Takaichi is a very experienced politician. She has had some experience working in the U.S. as well, a long-term observer of U.S.-Japan relations, so that’s her strength.

“She said that she’s confident that she could build a very strong personal relationship with President Trump. And the reason for that is her policy focuses on what she calls the ‘Japan First’ policy. And that kind of corresponds to President Trump’s America First policy. She sees that sort of common thread there. On the other hand, she’s a hardliner, very conservative when it comes to Japan’s relationship with its Asian neighbours.

“She has had a very hawkish stance on World War II legacy issues. She has insisted on visiting the Yasukuni Shrine numerous times, knowing that would inflame Japan’s relationship with its neighbours. So there is some concern that she could fuel tensions with the relationship with South Korea and China.

“This is a very challenging time for the LDP so I think she would probably try to focus on party unity and be very careful about taking excessively conservative hard-line stances in foreign policy.” — Reuters