Kaoru Yoshiba is expected to win a majority of seats in the House of Representatives, "Abenomics-style massive easing" is on the verge! Will the yen and government bonds continue to plummet?

Japanese media reported on Thursday that Japanese Prime Minister Sanae Takaichi appears to have a slight majority in the House of Representatives, the most powerful body in the Japanese parliament, mainly because a small group of parliamentarians will join the ruling coalition she leads. According to the reports, three members of the Japanese parliament belonging to the "Reform Association" parliamentary alliance have decided to join the Japanese United Government coalition led by Sanae Takaichi's Liberal Democratic Party and its partner the Japan Innovation Party, also known as Ishin. The addition of these three members will increase the total number of seats held by the Japanese United Government in the House of Representatives to 233, thus giving them a slight majority in the chamber, which has a total of 465 seats. The reports state that these three individuals plan to seek formal approval from the Liberal Democratic Party to join the ruling coalition on Friday local time. If the ruling coalition expands as reported, it will be another positive development for Takaichi's dominant position in parliament. When she became prime minister last month, her leadership of the Japanese United Government did not have a majority in both houses of parliament due to the weak performance of her predecessor, Shigeru Ishiba. Having a majority in the House of Representatives will allow Takaichi to have enough votes to pass the supplementary budget of the Japanese government, expected to be announced on Friday, and the annual budget planned for December. For the current situation in the Japanese financial markets, where stocks, bonds, and currencies are under pressure, Takaichi's ruling coalition achieving a slim majority in the lower house is a combination of "political stability + willingness to spend money," which may send a signal of "short-term optimism but long-term concerns" for stocks, bonds, and currencies. Under the framework of the "Abenomics" policy that Takaichi strongly follows, it is likely that the short-term Japanese stock market will rebound due to the "political stability + passing of stimulative budget policies," but the sustainability will depend on the details of the additional budget and tax reforms, rather than just the change in seats. Japanese government bonds and the yen may also have a short-term rebound due to political stability but will continue to be under pressure from Takaichi's massive fiscal spending. However, the yen and Japanese government bonds may enter a sustained downward trajectory due to Takaichi's plan to introduce large-scale stimulative policies. The political alliance led by Takaichi gaining a majority in parliament is more similar to confirming the path of "continued loose fiscal policy and increasing debt issuance," which is a major negative factor for bonds and currencies. This may lead to a new round of sharp spikes in the yield curve for Japanese long-term bonds (10 years and above), with rising yields indicating a significant drop in bond prices, potentially causing severe turbulence in global financial markets. At the age of 64, Takaichi is a conservative nationalist who considers former British Prime Minister Margaret Thatcher as one of her role models. She has long been an ally of the longest-serving prime minister in Japanese history, Shinzo Abe, and is a staunch supporter of his policies, which is why the current financial markets are starting to bet on the resurgence of "Abenomics." The recently hotly speculated "Takaichi trade" globally refers to the expectation that financial markets have of Takaichi, who was elected president of the Liberal Democratic Party, restarting the core policies of "Abenomics" (actively promoting a "loose fiscal framework" + maintaining a cautious stance on tightening monetary policy), which has caused significant volatility in the stock, bond, and currency markets. The "Takaichi frenzy trade" mainly manifests as a rapid surge in the Japanese stock market, continuous depreciation of the yen, and the restart of "yen carry trades." Therefore, betting on the logic of the "Takaichi trade" is essentially the same as betting on the combination of a "stronger fiscal stimulus, industrial support, and moderate monetary policy" for Japan's reflation - going long on Japanese stocks, short on the yen, and avoiding long-term bonds. However, considering the current situation in the Japanese market, under the combined pressure of continued depreciation of the yen and the historically high yields of Japanese long-term government bonds, both the Japanese stock market and Japanese medium-term bonds are facing significant sell-off pressure.