Japan’s stock market crashed sharply after Japan’s Liberal Democratic Party elected Shigeru Ishiba as the country’s next prime minister. According to the New York Times, Japan’s Nikkei 225 index fell by 4% in early trading sessions of Monday. Mr Ishiba defeated Sanae Takaichi, a disciple of Shinzo Abe who remains committed to Mr Abe’s policy to keep interest rates ultra-low. On the contrary, Mr. Ishiba is committed to increasing interest rates to tackle growing inflation concerns.
Moreover, The Bank of Japan has raised interest rates twice this year, with Governor Kazuo Ueda signalling further increases, though the timeline remains uncertain. This month, the Bank kept rates unchanged, possibly awaiting the stabilisation of political dynamics related to the L.D.P. election and other factors.
Factors Contributing To the Sharp Decline
According to some economists, this sharp decline in the stock market is because of the expectation that Ms Takaichi would emerge victorious, leading to what they called the “Ishiba Shock.”
Further, lower interest rates have weakened the yen, resulting in increased exports & profits for domestic Japanese companies and boosting their share prices. Japanese investors now fear increased interest rates will curb these companies’ profitability.
According to The New York Times, “The movements in the yen began to reverse when Mr. Ishiba was elected after Tokyo markets closed for the day. The yen was trading at around 142 to the dollar on Monday, compared to more than 146 on Friday.”
