The surge in Japanese stocks, triggered by Prime Minister Sanae Takaichi’s snap election plans, may fade if she gets what she wants, as overspending drives up inflation and government borrowing costs.
The Topix index rose more than 4% this week in its strongest rally since July after reigniting the “Takaichi trade” in which investors buy stocks on expectations of more government spending. Takaichi is gambling her party will win more seats and consolidate her power, giving her a freer hand to pursue pro-stimulus policies.
Investors think that Takaichi may emulate her mentor Shinzo Abe — Japan’s longest-serving leader — whose stimulus-heavy Abenomics fueled asset prices. She has flagged areas such as artificial intelligence, semiconductors, defense, space and content industries as investment priorities.
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