We look at some of the reactions to the arrival in office of Japan's first female prime minister – a politician thought to favour a policy mix that should be positive for the country's stock market.

Analysts expect economic policy in Japan to remain broadly positive for the country’s equities as the Asian economy gets used to life under its first-ever female prime minister.

At the start of this week, Japan broke new ground when Sanae Takaichi won a vote to become Japan's first female prime minister. The 64-year-old conservative is known as Japan’s “Iron Lady” and is an admirer of the late Margaret Thatcher. Japan is the world’s fourth-largest economy. 

Japan’s equity markets, after languishing for more than two decades after the stock market crash of the late 80s, have recovered some of their lustre. A series of reforms in recent years, such as the way companies are owned – enabling restructuring and higher distributions to shareholders – have boosted prices. 

Japan has regained some, if not all, of the vigour that made it the envy of Europe and the US in the 1980s.

Takaichi’s ascent to power came after a new coalition agreement between the Liberal Democratic Party (LDP) and Ishin on 20 October.

The premier’s approach to economics has already been branded “Sanaenomics” – easier fiscal and monetary policy.

“With a key equity market overhang removed given improved political stability in Japan, we expect the market to focus on the implementation of `Sanaenomics’ and the path forward, as the ruling coalition and the new cabinet work towards the formulation of near-term supplementary budget proposals and longer-term economic measures to catalyse national development,” Louis Chua, equity research analyst, Julius Baer, said in a note this week.

“We expect 'Sanaenomics’ to be broadly positive for the equities market and identified a list of stocks which may be beneficiaries of her economic priorities. The extent of fiscal expansion is key to watch, given the buy-in required from other political parties; however, with fiscal discipline being a key emphasis of Ishin, we believe the risk of unbridled fiscal expansion is now moderated,” Chua said. 

Chua said risks to Japan are those of rising concerns about private debt and the health of US regional banks, and whether the rally in AI-linked US equities can be sustained.

Julius Baer is targeting a 50,000 level for the Nikkei 225 Index, based on a forward price/earnings multiple of 22 times against the recent 23x high.

“In the near-term, we expect the ongoing earnings season to be supportive, given the prospects of continued earnings momentum and positive earnings revisions, partially supported by the weaker Yen,” Chua added.

Over at EFG Asset Management – part of Zurich-listed EFG International – the firm said that the new prime minister will want to adopt a more “accommodative fiscal policy.”

“While this could put pressure on the long end of the Japanese government bond (JGB) curve, with auctions already subject to weak demand conditions, Takaichi's policies will likely be diluted by the fact [that] the LDP does not have a majority in either house of the National Diet,” Sam Jochim, economist at EFG Asset Management, said.

“She has also publicly expressed dissatisfaction at Bank of Japan (BoJ) rate hikes, though there are many factors that mean the BoJ is likely to continue with its rate normalisation,” he continued. 

“Overall, it is likely that fiscal policy is marginally eased and that rates continue to gradually drift higher but remain accommodative, a scenario which could benefit stocks but lead to renewed volatility for the JGB market and the yen,” Jochim added.