Japan’s Stock Market Surges Nearly 5% Following the Election of a Conservative Leader—But Here’s Where It Gets Controversial...
Japan’s Nikkei stock index experienced a remarkable jump of almost 5% on Monday, accompanied by a weakening yen, after the country’s ruling party selected an ultra-conservative figure as its new leader—who is also poised to become Japan’s first female prime minister. This development has sparked excitement among investors, but it also raises important questions about the future direction of Japan’s economy and politics.
Across Asia, most markets followed suit with gains, while U.S. futures climbed and oil prices rose by about $1 per barrel, signaling a broader positive sentiment in global markets.
The Liberal Democratic Party (LDP) chose Sanae Takaichi, a staunch ally of the late Prime Minister Shinzo Abe, as their new leader. This choice strongly suggests that Takaichi will continue Abe’s market-friendly policies. At 64 years old, Takaichi is known for her admiration of former British Prime Minister Margaret Thatcher and her support for Abe’s ultra-conservative vision for Japan’s future.
Given that the LDP holds the most seats in Japan’s lower house—though not an outright majority—Takaichi is highly likely to become prime minister. The opposition parties remain fragmented, which further strengthens her path to leadership.
However, Takaichi faces a daunting set of challenges that have troubled her predecessors. According to BMI, a Fitch Solutions unit, these include enhancing Japan’s economic competitiveness, reinforcing its technological and industrial sectors, and addressing the profound issues caused by an aging and shrinking population—all while managing an enormous public debt burden. These are complex problems that require innovative solutions and careful policy planning.
Despite these hurdles, investors—especially those from outside Japan—seem optimistic. Neil Newman, head of strategy at Astris Advisory Japan, noted that the market’s reaction was largely driven by foreign investors who appear to favor Takaichi’s stated policies. "Investors clearly like what she’s been saying," Newman said, highlighting the strong market response.
Adding to the positive mood was an unconfirmed report suggesting that U.S. President Donald Trump might be exploring ways to reduce the financial impact of his higher tariffs on auto parts and other materials used by American manufacturers. This news buoyed automaker stocks, with Toyota Motor Corp. shares surging 4.9% in Tokyo and Honda Motor Co. climbing 4.7%.
By mid-afternoon Monday, the Nikkei 225 index had risen 4.7% to 47,924.52. Meanwhile, Hong Kong’s Hang Seng index fell 0.6% to 26,976.37, showing a mixed picture across Asian markets.
The Japanese yen weakened against the U.S. dollar, reflecting expectations that Takaichi’s policies will likely increase government spending, which could add to inflationary pressures. The dollar strengthened to 150.31 yen from 149.33 yen, while the euro dipped slightly to $1.1723 from $1.1730.
In Australia, the S&P/ASX 200 index slipped 0.1% to 8,976.70. Markets in mainland China, Taiwan, and South Korea were closed for holidays, limiting activity in the region.
Turning to the U.S., most stocks edged higher on Friday, contributing to Wall Street’s record-setting streak. The S&P 500 inched up less than 0.1%, closing at 6,715.79 and marking its seventh winning week out of the last nine. The Dow Jones Industrial Average rose 0.5% to 46,758.28, both indices building on all-time highs reached the previous day. However, the Nasdaq composite lost early gains and slipped 0.3% from its own record, ending at 22,780.51.
Usually, the first Friday of each month is a key day for Wall Street, as the U.S. government releases its monthly jobs report, detailing employment changes and the unemployment rate. But this time, the report’s release was delayed due to the ongoing U.S. government shutdown, now in its third day. This delay is significant because investors are closely watching the job market for signs of slowing growth, which could influence the Federal Reserve’s decisions on interest rates.
Historically, government shutdowns have had limited impact on the economy and stock market, and many analysts expect this one to be no different—even though President Trump has threatened large-scale federal worker layoffs during this shutdown.
Recent reports on U.S. business activity have been mixed. The Institute for Supply Management indicated that growth is stalling in sectors like health care, real estate, and other services, while S&P Global’s data suggests slow but ongoing expansion.
In commodities, U.S. benchmark crude oil rose by 99 cents to $61.87 per barrel, and Brent crude, the international benchmark, also gained 99 cents to $65.52 per barrel. This came after OPEC+—a coalition of oil-exporting countries—agreed over the weekend to a modest increase in oil production. They plan to raise output by 137,000 barrels per day in November, matching the increase announced for October. This steady, cautious approach to boosting supply reflects a generally optimistic global economic outlook and helps ease concerns about potential oversupply.
But here’s the part most people miss: While Takaichi’s election has been welcomed by markets, her ultra-conservative stance and close ties to Abe’s policies could deepen political divides within Japan and raise questions about social policies, especially regarding Japan’s aging population and immigration. Will her leadership truly address the structural challenges Japan faces, or will it reinforce the status quo? And how might her policies impact Japan’s role on the global stage, especially amid shifting geopolitical tensions?
What do you think? Is Takaichi the right leader to steer Japan through these turbulent times, or could her conservative approach limit necessary reforms? Share your thoughts and join the conversation below!
