Japan's Stock Plunge: The Impact of Shigeru Ishiba's Win

The Nikkei stock index plummeted over 4 percent early Monday, following the victory of Shigeru Ishiba in the ruling Liberal Democratic Party (LDP) leadership race. Investors were caught off guard by Ishiba's win, as many had bet on a boost from more monetary stimulus from his rival, Sanae Takaichi. The yen strengthened, and exporter stocks were hit hard, driving the selloff.


Ishiba's stance on monetary policy and Abenomics has raised concerns among investors. Unlike Takaichi, who advocated for further easing, Ishiba has remained supportive of the Bank of Japan's (BOJ) current path away from ultra-low rates. This stance has led to a selloff in Japanese stocks, as investors pare positions built on speculation that Takaichi would become prime minister and encourage the BOJ to keep interest rates low.


The yen's strength has played a significant role in the selloff, with the currency edging 0.3% lower to 142.68 per dollar after surging about 1.8% on Friday. A stronger yen makes Japanese exports more expensive, hurting the profitability of exporter companies. As a result, exporter stocks have been heavily impacted, with the Nikkei underperforming the Topix by more than one percentage point.

The potential appointment of Katsunobu Kato as finance minister may ease worries about Ishiba scaling back former Prime Minister Shinzo Abe's reflationary policies. Kato has been a supporter of Abenomics, which could help stabilize investor sentiment regarding Japan's fiscal policies.

Ishiba's focus on regional economic development and depopulation could have a significant impact on the performance of specific sectors in the Japanese stock market. Domestically oriented stocks, especially those that benefit from regional revitalization measures, may be preferred. However, the overall direction out of the deflationary period is not expected to change.

The potential timing of a general election under Ishiba's leadership could influence short-term market volatility and long-term investor sentiment. Ishiba may call for a general election on Oct. 27, which could introduce uncertainty and volatility in the market. However, investors' attention will likely turn to economic data and the US election once Ishiba is confirmed as prime minister.

In conclusion, Ishiba's win has led to a significant selloff in the Japanese stock market, driven by concerns about his monetary policy stance and the yen's strength. The potential appointment of Katsunobu Kato as finance minister and Ishiba's focus on regional economic development may help stabilize investor sentiment. The timing of a general election under Ishiba's leadership could introduce short-term volatility but is not expected to change the long-term direction of the market.