Japan has elected its 103rd Prime Minister, Shigeru Ishiba, following a special session of the country's parliament. Despite the victory, the ruling coalition, comprising the Liberal Democratic Party and Komeito, did not secure a majority in the House of Representatives. Analysts suggest that the Ishiba administration's reliance on smaller parties could lead to compromises with the opposition, potentially benefiting retail, utility, and technology stocks, while outlooks for defense and corporate governance-related stocks remain uncertain.
The market expects that Ishiba might implement tax cuts to boost disposable income, as he depends on support from minor parties. The Democratic Party for the People, for instance, demands raising the tax-free income threshold for part-time workers as a condition for cooperation. In response, the Liberal Democratic Party has shown willingness to discuss the matter, although they express concerns about potential revenue losses.
Yukihiro Kawanishi, a senior strategist at Aizawa Securities, argues that discussions on tax cuts could create room for growth in retail stocks like supermarkets and department stores. Notably, shares of Ryohin Keikaku Co., MatsukiyoCocokara & Co., and Shimamura Co. rose by over 1.2%, outperforming the Topix index, which fell by 0.3%.
Energy stocks could also gain, as opposition parties, including the Democratic Party for the People, support nuclear energy. Within a week of the elections, the Topix index's power and gas segment rose by 4.4%, eclipsing the overall market's 1% increase. This spike aligns with the restart of a nuclear reactor affected by the 2011 earthquake.
Since the Fukushima Daiichi disaster in 2011, the government has tried to rejuvenate Japan's nuclear industry. Despite the legislative opposition from the Constitutional Democratic Party of Japan, support from other parties might allow the ruling coalition to advance nuclear policies, potentially leading to a broad rise in utility stocks.
Meanwhile, defense stocks face an uncertain future. Ishiba's plans to increase Japan's defense budget could spark debates between parties. The Parliament is divided on funding methods for these military expenses, and further trade negotiations with the U.S. might be delayed due to political fragmentation.
Before the electoral setback, the Liberal Democratic Party proposed to raise corporate, income, and tobacco taxes to cover defense costs. Although the Democratic Party for the People supports defense enhancements, they oppose tax hikes. Asset Management One economist Yuko Iizuka suggests that the ruling party must now negotiate with the opposition, impacting policy speed and decision-making processes.
Despite these challenges, technology stocks could see a boost. Ishiba promised a substantial investment in AI and semiconductor industries by 2030, totaling 10 trillion yen (approximately $65.1 billion). This pledge positions AI-related stocks for potential long-term growth.
Chip-related stocks have reacted to these developments; Renesas Electronics' shares saw volatility amid speculation of gaining market share from U.S. competitor Monolithic Power Systems Inc., with shares rising 10% intraday and closing up 8.73%.
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