Nikkei 225 plunges nearly 5% amid Ishiba victory

by / ⠀News / October 1, 2024

Japan’s Nikkei 225 index plunged nearly 5% on Monday, closing at 37,919.55.

The sharp decline followed the election of Shigeru Ishiba as the new leader of Japan’s ruling Liberal Democratic Party (LDP) on Friday. Mr.

Ishiba, a critic of the country’s longstanding ultralow interest rates, has been a proponent of raising rates to help curb inflation. His victory underscores potential shifts in monetary policy for the world’s fourth-largest economy, which has grappled with decades of easy money policy. The market’s reaction, dubbed the “Ishiba Shock” by some economists, was attributed to the unwinding of stock trading that had anticipated the election of Sanae Takaichi, who supports maintaining ultralow interest rates in line with former Prime Minister Shinzo Abe’s economic policies.

The Topix index also saw a decline, dropping 3.47% to end at 2,645.94.

These declines were largely attributed to losses in real estate stocks, with the largest loser being a major department store holding company, which fell 10.64%. Industrial production data added to the grim economic outlook, showing a month-on-month drop of 3.3%, against an expected decline of 0.9%, and in stark contrast to a rise of 3.1% in July.

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Additionally, the yen weakened slightly against the dollar, trading at 142.38. The election of Mr.

Ishiba comes at a critical juncture, highlighting the delicate balance policymakers must strike between fostering economic growth and controlling inflation.

nikkei reacts to Ishiba’s election

With inflation surging recently, the Bank of Japan has raised interest rates twice this year. Bank governor Kazuo Ueda has indicated intentions to continue raising rates, although the timeline remains uncertain.

Just three days after his election, Mr. Ishiba announced plans for a snap election on October 27. “It is important for the new administration to be judged by the people as soon as possible,” Ishiba said at a press conference in Tokyo on Monday.

The election, which is set to take place more than a year before it is due, will decide which party controls parliament’s lower house. Since the LDP has a parliamentary majority, Ishiba will be approved as prime minister by parliament on Tuesday. Ishiba has begun picking government and party officials who will contest the upcoming general election with him, including two influential former prime ministers: Taro Aso, as adviser, and Yoshihide Suga, as vice-president.

He also asked Shinjiro Koizumi, a popular rival in Friday’s leadership race, to serve as election strategy chief. After winning Friday’s leadership election, Ishiba said he would revitalize Japan’s economy, address security threats, and clean up the LDP, whose approval ratings have plummeted in recent months amid public scandals and internal conflicts. Despite the scandals, the LDP, which has ruled Japan for most of the post-war era, remains the country’s most popular political party.

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The last two weeks of campaigning for its leadership were seen by experts as an audition for the general election, with candidates presenting themselves not only to fellow party members but also to the public, in an attempt to win over the electorate.

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