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Investing.com - Japan’s stock market valuations are anticipated to grow under the leadership of the country’s first female premier Sanae Takaichi, according to analysts at Morgan Stanley MUFG.
Takaichi, leader of Japan’s Liberal Democratic Party and an acolyte of former PM Shinzo Abe and Britain’s Margaret Thatcher, won both a key lower house vote on Tuesday as well as one in the less-powerful upper house.
The 64-year old succeeds the incumbent Shigeru Ishiba, who abruptly announced his resignation from the nation’s top job in September after the LDP suffered crushing losses in recent elections.
Takaichi is widely regarded as a fiscal dove, and is expected to dole out more government spending on infrastructure, industrialization, and defence. She will take leadership of the world’s fourth-largest economy as it grapples with slowing consumer spending, sticky inflation, and trade-related headwinds from U.S. tariffs.
Expectations of a resurgence of broad-based stimulus measures similar to those unveiled during Abe’s tenure have fueled a spike in Japanese stocks, with the Nikeei share average touching fresh record peaks on Tuesday.
"Takaichi’s appointment as prime minister symbolizes structural reform and diversity in leadership," the Morgan Stanley MUFG analysts including Sho Nakazawa and Ukyo Haraguchi said in a note, adding that the new premier will advocate for a "balanced pro-growth and proactive fiscal strategy" which may "lift" estimates for corporate returns.
In particular, they argued that a potential acceleration in corporate governance reform under Takaichi could lead to a dip in capital costs, while her inauguration represents a step forward in "gender and governance" in Japan. A subsequent dip in the risk premium around environmental, social and governance issues would contribute to a decrease in capital costs, the analysts said.
"Foreign investors prefer large-cap, highly liquid stocks: toward the interim earnings season, we recommend stocks with strong earnings revisions and weak momentum among large, liquid names," they wrote.
Still, the yen and bond yields have weakened, as some investors note worries over the ability of Japan’s debt-laden government to pay for the increased expenditures.