'Ishiba Shock' Japan Stock Market Closes Down 4.8%

Breakdown Below 38,000 Level

On the 30th, the first trading day after Shigeru Ishiba was elected as the new president of the Liberal Democratic Party, Japan's representative stock index, the Nikkei 225 average (Nikkei index), closed at 37,919, down 4.8% from the previous trading day, according to Nihon Keizai Shimbun (Nikkei).

The Nikkei index fell immediately after the market opened that day, recording 38,155.5 at around 9:22 a.m., down 4.18% (1,666 points) from the previous trading day. It then briefly rebounded but fell again in the afternoon, breaking below the 38,000 level.

[Image source=Reuters Yonhap News]

Nihon Keizai Shimbun (Nikkei) reported that this was the largest drop on the trading day immediately following a Liberal Democratic Party presidential election since 1990.

The market attributes the sharp decline in the Nikkei index to a reversal of the "Takaichi trade." This is an analysis that the previous rise in the yen depreciation and stock price trade, driven by the victory of Sanae Takaichi, Minister in charge of Economic Security, who advocated for monetary easing policies and the succession of "Abenomics," has now reversed. Last week, the Nikkei index rose about 5% over two days on the 26th and 27th.

Minister Takaichi, in charge of Economic Security, led the first round of voting in the Liberal Democratic Party presidential election, surpassing President Ishiba and taking first place, but lost in the runoff vote.

There is also concern about the Ishiba administration's policies, which have shown a positive stance on taxing financial income and raising corporate taxes. Kazuyuki Muramatsu, Head of Operations at Wakapital, said, "The market's reaction reflects caution about tax increases, and investors' excessive anxiety has somewhat eased," but added, "Looking at the party leadership, there are signs of intentions for fiscal tightening."

At around 3:50 p.m. that day, the dollar-yen exchange rate was moving around 141.96 yen per dollar.