Japanese Stocks Lead Decline in Asia-Pacific Indices on "Sell the Fact" Trading; How Will the "Takaichi Trade" 2.0 Unfold?

As a staunch supporter of Abenomics, Sanae Takaichi's policy proposals have fueled market expectations of a repeat of the "Abenomics 2.0" rally in Japanese stocks. After Shinzo Abe took office in 2012, his three-pronged approach of ultra-loose monetary policy, expansionary fiscal policy, and structural reforms drove the Nikkei 225 index to accumulate a gain of approximately 155% over ten years.

Takaichi's economic proposals include expansionary fiscal policies, such as abolishing temporary special taxes on gasoline and diesel and raising the income threshold for higher marginal tax rates. Regarding monetary policy, she emphasizes that the government should take responsibility for economic policy. Although the Bank of Japan formulates specific monetary policies, collaboration between the government and the central bank is crucial. In terms of structural reforms, she places greater emphasis on technological innovation.

However, after pricing in the "Takaichi trade" in advance, the Japanese stock market has now begun to "sell the fact." Takehiko Masuzawa, head of Japanese stock trading at Phillip Securities, stated, "Given the monthly gains already achieved by Japanese stock indices, some investors may be taking profits. Investors' focus on the Takaichi government will shift from expectations to actual performance." Since former Prime Minister Shigeru Ishiba announced his resignation, the Nikkei index has risen nearly 15%, surpassing the S&P 500's 3.9% gain over the same period, and Japanese stock valuations have reached multi-year highs.

Beyond the decline in the overall index, at the sector level, Takaichi proposed during her party leadership campaign to inject more government spending into strategic industries such as defense, technology, cybersecurity, and nuclear energy. Following her election, stocks in these sectors have also experienced "sell the fact" trading. Defense equipment manufacturer Mitsubishi Heavy Industries fell 3.3%, and Penta-Ocean Construction Co. Ltd. declined 2.0%.

James Athey, investment manager at asset management firm Marlborough, noted that the formation of a new coalition government does not give a "green light" to Takaichi's policies. Her ability to implement a "large-scale expansionary agenda remains severely constrained by political and economic conditions," so a significant second wave of the "Takaichi trade" should not be expected. Shinichi Ichikawa, senior researcher at Pictet Asset Management, added, "This will be a fragile coalition. She will have to adopt more cautious policies rather than the radical ones previously promised."