Japanese stocks hit new highs again! Kishida Fumio was elected as Japan's first female prime minister. Will "Abenomics" make a comeback?

Koike Saionji won in the parliamentary vote on Tuesday and was elected as the 104th Prime Minister of Japan, becoming the country's first female Prime Minister. The Nikkei 225 Index closed up 0.27% at 49,316.06 points, hitting a new high. The yen maintains its downward trend, and the dollar is currently trading around 151 yen. In the first round of voting for the Prime Minister in the House of Representatives in Japan, the Liberal Democratic Party leader Koike Saionji received 237 votes (out of 465 seats in the House of Representatives), winning more than half of the votes. Shortly after this result was announced, she also won the decisive vote in the Senate with 125 votes. Koike Saionji's election as Prime Minister is a historic achievement in a country where the number of women in politics has long been low. However, after achieving this milestone, she will face a series of challenges including ongoing inflation, tense security environment, and domestic political instability. One of the first tasks she has to deal with is forming a cabinet, and she is expected to announce these appointments later on Tuesday. In the coming days, she will also attend a series of diplomatic events, including a visit from US President Trump next week. Since Koike Saionji took over as the leader of the ruling Liberal Democratic Party two and a half weeks ago, the ruling party unexpectedly split from its long-time partner, the Democratic Party. Subsequently, she formed a new alliance with another opposition group, the Japan Innovation Party. Although the Japan Innovation Party supported Koike Saionji's candidacy for Prime Minister, the alliance still lacks two seats in the lower house to secure a majority. This will pose a dilemma for her on how to gain support in parliament to ensure the majority needed to pass budgets and legislation. She has reportedly begun to unite by appointing important party positions to major competitors, including appointing Shinjiro Koizumi as Defense Minister and Toshimitsu Motegi as Foreign Minister. At the same time, she has reportedly taken a more firm stance on fiscal matters by appointing Taro Aso as Japan's first female Finance Minister. Will the "Saionji Trade" heat up, and will "Abenomics" return to the forefront? Koike Saionji's views on the economy are similar to those of former Prime Minister Shinzo Abe, who implemented a policy of inflationary economics called "Abenomics". She has always advocated using government spending to promote Japan's economic growth and criticized the Bank of Japan's tightening monetary policy. The theoretical framework of "Abenomics" has been a long-term catalyst for the Japanese stock market and even global stock markets, especially for technology stocks. Therefore, if Koike Saionji's policy focus primarily includes tax cuts/cash subsidies and the ambitious goal of "comprehensive investment in Japan", coupled with a foreseeable path of sustained fiscal expansion, it will undoubtedly drive the Nikkei 225 Index and the TOPIX index on a long-term bull market trajectory, especially benefiting AI, semiconductors, energy, advanced manufacturing, and defense industries. The recent surge in the global so-called "Saionji Trade" refers to the expectation in financial markets of her rekindling the core policy of "Abenomics" (actively promoting a "super-loose fiscal framework" and maintaining a cautious stance on monetary tightening). The "Saionji Trade" is mainly reflected in the rapid rise of the Japanese stock market, the continued depreciation of the yen, and the resumption of "yen carry trades". Therefore, betting on the logic of the "Saionji Trade" is essentially equivalent to betting on the Japanese re-inflation combination of "stronger fiscal stimulus, industry support, and moderate monetary policy" - going long on Japanese stocks, shorting the yen, and avoiding long-term bonds. Since her victory, the yen has depreciated and the stock market has risen, as people expect stimulative measures to be introduced and pressure on the central bank to avoid raising interest rates to increase. The wave of the "Saionji Trade" prompted a surge in the Japanese stock market during the trading session on Monday, with the benchmark Nikkei 225 index rising to 3% at one point, hitting a historical high before narrowing its gains. Year-to-date, the Nikkei 225 Index has risen by approximately 25%. However, the depreciation of the yen is likely to exacerbate inflation. Over the past two years, dissatisfaction among voters with the ruling Liberal Democratic Party's failure to stem the rise in living costs has led to the party's defeat in two national elections. This puts Koike Saionji in a dilemma when reintroducing policy proposals in line with "Abenomics". When running for the leadership of the ruling Liberal Democratic Party, she took a more moderate stance, indicating that she does not deny the necessity of fiscal reform and will leave specific monetary policy matters to the Bank of Japan. The Liberal Democratic Party has also agreed to consider certain policies proposed by the Japan Innovation Party in order for the party to join a coalition government. These policies include considering a two-year reduction in the consumption tax. Although this is less costly than an overall tax cut, it carries political risks. Governments usually face strong opposition when attempting to increase taxes, even when a time frame has been set in advance. Koike Saionji's victory on Tuesday also indicates a shift towards the right in Japan, as more and more Japanese people express dissatisfaction with their living standards not keeping up with global trends, the influx of foreign populations, and the escalating security tensions in the region.