Changes in the Japanese political arena have caused the stock market to fluctuate, with retail and energy stocks benefiting significantly.

The latest changes in the Japanese political landscape are profoundly affecting the stock market situation, as the new influence of opposition lawmakers is prompting investors to actively seek returns in retail and power plant stocks. Prime Minister Shizo Abe's possible tax reduction policies to maintain support from small parties are expected to increase workers' disposable income. At the same time, the ruling coalition and its potential allies push for restarting more nuclear reactors, bringing positive news to the retail and energy industries. However, the prospects for defense-related stocks are overshadowed by disagreements among parties on the sources of military spending. Additionally, a more divided government may lead to a slowdown in decision-making processes, affecting key initiatives such as corporate governance reforms and trade negotiations. Specifically, after losing the majority in last year's House of Representatives elections, Prime Minister Shizo Abe was confirmed as the leader of a minority party government in a special parliamentary vote on Monday. He pledged a 100 trillion yen aid plan for artificial intelligence and semiconductors by 2030, which sparked long-term expectations of a rise in AI-related stocks. The stock price of semiconductor manufacturer Renesas Electronics Corporation soared by 10% on Tuesday, mainly benefiting from Prime Minister Abe's financial aid commitment, as well as market expectations for Renesas Electronics to gain more market share from its US competitor, Monolithic Power Systems Inc. However, other chip-related stocks such as Tokyo Electron Limited and Advantest Corporation saw minor declines due to the weak performance of US tech stocks overnight. As of the time of writing, the Nikkei 225 index fell by 0.7%, reflecting the market's volatility due to US and domestic political uncertainties. To maintain the support of the opposition, Abe may implement tax reduction policies, which would directly benefit retail enterprises. With the push from opposition parties like the Democratic Party, the tax-free income limit has been raised from 1.03 million yen to 1.78 million yen, expecting to increase consumer purchasing power and drive up retail industry stock prices. On October 31st, despite a slight 0.3% decline in the Nikkei index, stocks of consumer retail companies such as Ryohin Keikaku Co., Matsuki Cocokara & Co., and Shimamura Co. rose against the trend, with increases exceeding 1.2%. This phenomenon occurred after Democratic Party leader Yukio Edano made a statement on social media platform X, emphasizing that the Democratic Party would not cooperate with the ruling coalition unless the tax-free income limit is raised from 1.03 million yen. In response, the Liberal Democratic Party showed openness, expressing willingness for "practical discussions" on this policy. However, they also expressed concerns about the potential decrease in government revenue. Takahiro Kawanishi, a senior strategist at Sumitomo Securities, predicted that if the government continues to promote the discussed tax reduction measures, supermarket and department store stocks will further rise. The energy industry also benefited significantly, as the opposition generally supports nuclear power, aligning with the ruling party's push to restart more nuclear reactors. This policy direction has driven up stocks of electricity and natural gas suppliers. In the week following the election, the electric power and natural gas supplier index of the Nikkei rose by 4.4%, exceeding the overall index's 1% increase. However, not all industries will benefit from this political change. Defense-related stocks face the risk of disagreements among parties regarding the sources of military spending, leading to relatively dim prospects. Additionally, investors are concerned that a more divided government could slow down policy-making processes overall, affecting decisions on corporate governance reforms and trade negotiations. Economist Yuko Iizuka pointed out that the ruling party is now in a minority position and must coordinate with the opposition. While this increases the risk of parliamentary instability, the enhanced bargaining power of opposition lawmakers will be advantageous for businesses. Analysts are also concerned that disputes among parties may slow down the speed of policy formulation, delaying government decisions on future issues such as corporate governance. Overall, the changes in the Japanese political landscape bring both new opportunities and challenges to the stock market. The retail and energy industries benefit significantly from favorable policies, while defense-related stocks face greater uncertainty. As the political situation clarifies further, the market's volatility is expected to stabilize.