Stocks in Asia were mixed overnight, with the Nikkei (^N225) surging 4.8% on the day in Japan, hitting a record high, as traders digested a big political surprise. Sanae Takaichi has been elected leader of the ruling Liberal Democratic Party (LDP), positioning her to become Japan’s first female prime minister following a parliamentary vote expected on 15 October.
Her victory defied expectations as Polymarket odds were as low as 8.5% last week and only 15% by Friday’s close. It has prompted a swift reassessment of Japan’s policy trajectory.
Deutsche Bank's Japan economist Ken Koyama said:
One immediate consequence to the news is a likely delay in Bank of Japan (BoJ) rate hikes. Ken now expects the next hike in January 2026, followed by moves in July 2026 and January 2027, ultimately bringing the policy rate to 1.25%.
Before the weekend, the probability of an October hike stood at 58% (down from 68% at September’s end); this morning, it sits at 23%.
The yen has also weakened 1.85% against the dollar and stands at 150.25, and 2-year yields are 3.5bps lower.
In terms of the rest of Asia outside of Japan, stock markets are largely subdued as holidays in China, with the Shanghai Composite (000001.SS), and South Korea with the Kospi (^KS11) are weighing on activity.
Meanwhile the Hang Seng (^HSI) fell 0.6% in Hong Kong.due to a downturn in technology stocks.
