Japan stays the course

USD/JPY

Key zone: 156.00 - 157.50

Buy: 157.50 (on strong positive fundamentals) ; target 159.00-159.50; StopLoss 156.80

Sell: 155.50 (on a pullback after retesting the 156.00 level) ; target 153.50; StopLoss 156.30

Japanese equities posted a sharp rise following the results of the snap parliamentary elections. Stocks accelerated their upward movement after the convincing victory of Sanae Takaichi, who will head the government with the largest margin of votes in recent decades.

Even the most hardline opponents of the Liberal Democratic Party acknowledged that the voting results exceeded expectations. Investors interpreted the election outcome as a signal of political stability and a reduction in regulatory risks, which was immediately reflected in prices.

• The Nikkei 225 index rose by 5.7%, confidently broke above the 57,000 level and ended the session with a gain of about 4%.
• The Topix index also обновил its historical high, exceeding the level of 3,800 points (+2.7%).
• Shares of technology and engineering companies posted gains of more than 10%. In particular, shares of Advantest, a leading manufacturer of semiconductor testing equipment, rose by 11.5%.
• Shares of Mitsubishi Heavy Industries, viewed as an indicator of Japan’s defense spending, increased by nearly 4%.

Large investors assess Takaichi’s economic program as the foundation for a “strong and prosperous Japan” scenario. The current market dynamics reflect expectations of large-scale structural reforms and increased investment in technological sectors amid an unprecedented parliamentary majority.

Goldman Sachs analysts note that the Japanese market is outperforming the US market by about 10 percentage points in growth rates, which creates prerequisites for an increased inflow of foreign capital.

An additional positive factor was support from Donald Trump, with whom Takaichi plans to hold a meeting in March. The Prime Minister stated her intention to pursue a strategic budget policy, placing emphasis on the development of AI, semiconductor manufacturing, and the defense industry. Japan expects to maintain US support in the field of security.

At the same time, Takaichi announced plans to initiate discussions on revising Japan’s 1947 Constitution, including its pacifist provisions. Amendments would require approval by two-thirds of lawmakers in both houses of parliament and a nationwide referendum.

The markets also focused on Japan’s foreign exchange reserves of about $1.4 trillion, a significant portion of which is invested in US Treasury bonds. These reserves are seen as a potential source of funding for the controversial initiative to suspend the consumption tax. Against this background, yields on 10-year Japanese government bonds showed moderate growth.

Plans for fiscal stimulus and a revision of tax policy create risks of yen depreciation and increase the importance of debt market dynamics and foreign exchange reserves.

The market allows that Takaichi’s victory may lead to a weakening of the yen toward 160 per dollar amid plans to finance reforms. At present, the exchange rate remains relatively stable around $156.50, as the new government declares its intention to restrain excessive fluctuations. Spot market speculators expect stabilization of the equity market and continue to accumulate trading volumes in key zones.

So we act wisely and avoid unnecessary risks.

Profits to y’all!