Japan is likely to get it's 1st female PM in Sanae Takaichi. She is third time lucky in contesting for the LDP leadership elections. Takaichi was once a drummer in a heavy metal rock band in her college days at Kobe University. She is a known Abenomics follower. The victory of pro-stimulus Sanae Takaichi in the leadership race of the Liberal Democratic Party is set to tilt Japan’s fiscal policy in a more stimulative direction. But her stance on protecting Japan from inflation implies it might not be a full-blown fiscal expansion. Even on monetary policy, she might defer to a slow & steady rate hike cycle of BOJ to counter inflation as real rates remain deeply -ve. a. Takaichi is supportive of higher military spending, which should help soothe U.S. concerns. But at the same time, she is likely to revisit the recent US Japan trade deal in light of her recent comments on the 550 BN USD committed investments to US in return for the 15% tariffs. She is likely to focus on sectors such as nuclear power, semiconductors, battery technology and artificial intelligence. In her speech before the runoff, Takaichi stressed the need to move quickly on measures to tackle rising prices. She called for abolishing the provisional tax on gasoline and diesel, among other steps, to address higher prices. But at the same time she has advocated tax credits to bolster take-home pay, deductions for household services and corporate breaks for firms that provide in-house childcare. In summary, we can expect a modest fiscal expansion with moderate monetary tightening leading to more capital inflows towards Japanese equities & higher JGB yields. On JPY itself, we believe after the initial knee jerk reaction, JPY might slowly move towards 140 levels as Oct hike by BOJ takes place along with more capital inflows into Japanese equities (from foreign investors) & bonds (repatriation of local investor's capital).
