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is the japanese stock market in danger?

on the evening of september 27, the nikkei 225 index futures once fell by more than 2,000 points and triggered the circuit breaker mechanism. as of around 19:00, the nikkei 225 index futures still fell by more than 4%. in the foreign exchange market, the japanese yen also fluctuated sharply. the japanese yen's exchange rate against the us dollar rose straight from a decline of more than 1% to an increase of more than 1%, with an amplitude of more than 2.5%.

earlier that day, the presidential election of the liberal democratic party of japan was held in tokyo. former liberal democratic party secretary-general shigeru ishiba was elected as the 28th president of the liberal democratic party. according to the plan, on october 1, he will succeed fumio kishida as the new prime minister of japan through a nomination election in the provisional parliament.

japanese stocks collapsed due to "fright"

on the evening of the 27th local time, after shigeru ishiba was elected as the new president of the liberal democratic party of japan, the nikkei 225 index futures trading once plummeted 2,220 points during the session and triggered the circuit breaker mechanism, with the highest drop reaching 5.6%. currently, the nikkei 225 index futures are still down more than 4%.

the japanese yen exchange rate also fluctuated violently. on september 27, the japanese yen exchange rate against the us dollar originally fell by more than 1%, but suddenly rose by 370 basis points to an increase of more than 1%, reaching a maximum of 142.78. as of around 19:00, the exchange rate of the japanese yen against the us dollar still increased by more than 1%, and was quoted at 143 yen per us dollar. it is reported that on the eve of the election, ishiba supported the bank of japan’s policy of steadily raising interest rates and expressed concerns about the depreciation of the yen.

on the afternoon of september 27, local time, former secretary-general of the liberal democratic party of japan, shigeru ishiba, won the majority of votes in the second round of the liberal democratic party’s presidential election and was elected as the 28th president of the liberal democratic party.

in the first round of voting, none of the nine candidates received more than half of the votes. the top two vote-getters, current economic security minister sanae takaichi and former liberal democratic party secretary-general shigeru ishiba, entered the second round of voting. the actual number of votes in the second round was 414, of which 409 were valid votes. ishiba was finally elected as the new president of the liberal democratic party with 215 votes.

the term of current japanese prime minister fumio kishida as president of the liberal democratic party will end on september 30. the new president of the liberal democratic party, shigeru ishiba, will be nominated by the national assembly on october 1 to take over as prime minister.

"veteran" in japanese politics

shigeru ishiba was born in 1957 and is now 67 years old. this is his fifth time running for election. he worked in a bank in his early years. in his 38 years in politics, he has been involved in many fields such as agriculture, security, and local revitalization. he served as secretary-general of the liberal democratic party and chairman of policy investigation, and was called a "policy expert."

according to japanese media reports, shigeru ishiba’s father, jiro ishiba, once served as the governor of tottori prefecture and the prime minister of japan. shigeru ishiba once worked in a bank, and then accepted the advice of former prime minister tanaka kakuei, who was close to his father, and determined to enter politics. in 1986, he was elected to the house of representatives for the first time. he regarded tanaka as his "political mentor."

ishiba shigeru advocated political reform and withdrew from the liberal democratic party in 1993. after returning to the liberal democratic party, in 2002, he entered the cabinet for the first time as the minister of defense. in the 2012 presidential election, although he topped the first round of voting, he was overtaken by former prime minister shinzo abe in the final voting. after resigning as the local construction minister in 2016, ishiba shigeru no longer holds important positions. the number of ishiba shigeru faction members has decreased. in 2021, it changed from a faction to a group.

economist taro kimura commented that the surge in the yen after the ruling liberal democratic party chose shigeru ishiba as the next party leader fully illustrates the economic policies ishiba may adopt - moving towards a more balanced budget and supporting the bank of japan to normalize interest rates.

after decades of massive stimulus, the bank of japan raised interest rates in march for the first time in 17 years and canceled experimental programs aimed at stimulating inflation. seisaku kameda, former chief economist of the bank of japan and now executive economist at sompo institute plus, said: "financial markets have been nervous about the outcome of the election, but now that we know the result, it means that there will be no major changes in japan's economic policy. change."

ishiba supported the bank of japan's efforts to tighten monetary policy and emphasized increasing regional economic development with the help of government spending to solve the problem of depopulation in rural areas. overall, he still supports the bank of japan's continued move away from ultra-low interest rates, while his rival sanae takaichi has been an outspoken critic of the bank of japan raising rates too quickly.

"while respecting the bank of japan's independence, i hope that through serious discussions, the authorities can normalize policies at a speed consistent with the actual economic situation without cooling the economy," ishiba said in his campaign manifesto.

uob economist alvin liew wrote in a research report that ishiba's victory in the election will be seen as support for bank of japan governor kazuo ueda, because ishiba has expressed support for the normalization of monetary policy. shigeru ishiba is expected to become japan's new prime minister.

"what the bank of japan is really worried about is that if the central bank raises interest rates again, there may be greater market volatility," alvin liew said. uob still expects the bank of japan to continue on the path of raising interest rates, although this may not be a continuous cycle and the extent of rate hikes may be limited. uob expects the bank of japan to raise interest rates by 25 basis points to 0.5% in the fourth quarter and believes this will be the terminal rate.

ishiba is seen as supporting the bank of japan's plan to continue gradually tightening monetary policy to boost the yen, but traders are concerned that this could curb overall gains in stocks, which have hit record highs.

however, investment bank goldman sachs recently said that despite the rise in the yen, the momentum of corporate profits remains strong, which indicates that japanese stock markets will rise further this year. "the u.s. economy will be the most important factor affecting japanese stocks in the coming months, especially toward the end of the year," said kazunori tatebe, a strategist at goldman sachs.

some analysts pointed out that one industry that may benefit from ishiba shigeru coming to power and the bank of japan raising interest rates will be the banking industry. the topix bank index has been outperforming on expectations of tightening.