Japanese Stocks Rally as Prime Minister Ishiba Announces Resignation

Japanese Stocks Surge Following Prime Minister Ishiba’s Resignation

Japan’s benchmark Nikkei 225 index rose sharply by 1.5% on Monday after Prime Minister Shigeru Ishiba announced his resignation, a move that comes after sustained pressure following his defeat in last year’s national election. The broader Topix index also climbed 1% to reach a new record high, reflecting investor optimism amid the political transition.

Potential Successors Fuel Market Optimism

Market analysts have highlighted Koizumi Shinjiro, the current agricultural minister and son of a former prime minister, as a leading candidate to succeed Ishiba. Another strong contender is Takaichi Sanae, a protege of the late Prime Minister Abe Shinzo and last year’s party contest runner-up. Stefan Angrick, head of Japan and frontier markets economics at Moody’s Analytics, noted these frontrunners in a Monday briefing.

Richard Kaye, portfolio manager at Comgest, described the market’s positive reaction as somewhat unexpected but driven by enthusiasm for both Koizumi and Takaichi. Kaye emphasized Takaichi’s focus on deregulation and her opposition to interest rate hikes as factors likely to support economic growth and justify the rally.

Currency and Bond Markets Reflect Uncertainty

The Japanese yen depreciated by 0.64%, trading at 148.33 against the US dollar, while Japanese government bonds experienced continued selling pressure. The yield on the 30-year Japanese government bond increased by over 4 basis points to 3.272%, after reaching a record high the previous week. Similarly, the 20-year bond yield rose by more than 3 basis points to 2.676%.

Investors are pricing in persistent inflation, tighter monetary policy, and fiscal uncertainties, contributing to rising bond yields. Analysts from BMI, a Fitch Solutions unit, cautioned that Japan faces a period of extended uncertainty heading into the final quarter of 2025. They also noted the theoretical possibility of the opposition uniting behind a rival candidate, which could disrupt the usual succession process within the ruling Liberal Democratic Party (LDP).

Mixed Performance Across Asia-Pacific Markets

Elsewhere in the region, South Korea’s Kospi index gained 0.15%, with the Kosdaq small-cap index rising 0.47%. Hong Kong’s Hang Seng index increased by 0.48%, while China’s CSI 300 index remained flat. Conversely, Australia’s S&P/ASX 200 declined 0.38%.

Market participants are also focused on China’s upcoming trade data for August, which will provide further insight into regional economic conditions.

Energy and US Markets Await Key Data

Oil prices edged higher after OPEC+ announced a slower pace of production increases, agreeing to raise output by 137,000 barrels per day starting in October. This is a significant reduction compared to recent monthly increases exceeding 400,000 barrels per day. Brent crude rose 0.53% to $62.20 per barrel, while West Texas Intermediate futures increased 0.6% to $65.89 per barrel.

In the United States, stock futures were largely unchanged as investors prepared for a week packed with crucial inflation reports. The producer price index for August is scheduled for release on Wednesday, followed by the consumer price index on Thursday. Last week, US equities closed lower after a disappointing jobs report heightened concerns over economic slowdown, despite growing expectations for a Federal Reserve interest rate cut.