Nikkei Index Surpasses 54,000 for the First Time... Yen Weakens, Long-term Interest Rates Rise

Yen Surges to 159.4
Nikkei Hits Record High on Early Election Speculation
Proactive Fiscal Expansion Expected if LDP Wins
Yen Weakens Further as Exchange Rate Climbs

Bank of Japan (BOJ) Reuters Yonhap News

The Nikkei 225 Average Stock Price (Nikkei Index), Japan's leading stock index, surpassed the 54,000 mark for the first time ever as expectations of an early general election next month increased.

On January 14, the Nikkei Index closed at 54,341, up 1.48% from the previous day's closing price. Around 12:30 p.m., it rose as high as 54,487.

Nihon Keizai Shimbun analyzed that the stock market was driven by expectations that Prime Minister Sanae Takaichi would dissolve the House of Representatives (the lower house) on the first day of the regular Diet session scheduled for January 23, making it possible for an early general election to be held as soon as early February.

It was explained that investors are buying stocks in anticipation that if the ruling Liberal Democratic Party wins the early general election next month, the proactive fiscal policies emphasized by Prime Minister Takaichi will be further strengthened.

Additionally, the experience of "buying during elections" is also known to have influenced the rise in stock prices. Since 2000, the House of Representatives has been dissolved nine times in Japan, and on seven of those occasions, the Nikkei Index rose when comparing the dissolution day to the voting day.

The yen continues to weaken and long-term interest rates continue to rise. In the Tokyo foreign exchange market on the morning of January 14, the yen-dollar exchange rate at one point reached the 159.4 yen range. This is the highest rate (indicating a decline in the value of the yen) in a year and six months since July 2024. At that time, the Japanese government intervened in the foreign exchange market by purchasing yen.

The yield on the 10-year Japanese government bond, a key indicator of long-term interest rates in Japan, temporarily rose to 2.185%. This is the highest level in about 27 years since February 1999.

Kyodo News reported that "concerns are mounting that if Prime Minister Takaichi accelerates proactive fiscal policies, fiscal deterioration will worsen due to increased government bond issuance, leading to rising interest rates."