"Takashika Sanae trading" makes a comeback! Japanese stocks open strong, yen approaches one-year low.

After experiencing a three-day long weekend, the Japanese stock market opened higher. The market's expectation of an early general election domestically has led to a resurgence of the so-called "Koshi Hayaoyoshi trade," while the weakening of the yen has boosted export-oriented companies. In early trading on Tuesday, the Nikkei 225 index rose by 3.43% to 53722.76 points; the broader TOPIX index rose by 2.17% to 3590.40 points. The electronics, banking, and automotive sectors contributed the most to the rise in the TOPIX index. At the same time, the exchange rate of the yen hovered around 158 yen to the US dollar, approaching its weakest level since January 2025. The yield on Japan's 30-year government bonds jumped by 12 basis points to 3.52%. Following reports in the Japanese local media over the weekend, speculation continues to brew in the market that Prime Minister Koshi Hayaoyoshi may dissolve the parliament as early as next month. The market expects his ruling Liberal Democratic Party (LDP) to win more votes in a potential election, fueling expectations for a resurgence of the "Koshi Hayaoyoshi trade" based on the stock market rally and weakening yen resulting from his expansionary fiscal and loose monetary policy stance. Analysts Ryota Sakagami and Keishi Ueda from Citigroup Research Institute pointed out in their report, "The market is gradually forming a consensus - a high approval rating for the cabinet means the LDP is highly likely to win, thereby building a stable political framework. As a result, the initial reaction in the Japanese market may lead to a resurgence of the 'Koshi Hayaoyoshi trade'." They added that this trend is expected to drive sectors that benefit from Koshi Hayaoyoshi's fiscal spending (such as defense and nuclear power) and currency-sensitive export-oriented companies (such as automakers) to achieve "significant increases." Furthermore, the market anticipates that if Koshi Hayaoyoshi can obtain a clearer mandate to govern, his expansionary fiscal stance will be further strengthened, putting pressure on the Japanese government bond market. Sakagami and Ueda stated that the rise in long-term Japanese government bond yields will provide positive support for financial sector stocks like banks. Weakening Yen After reports last Friday of a possible dissolution of the parliament, the yen fell to its lowest level against the US dollar in a year. Japanese Finance Minister Kaori Kato expressed concern on Tuesday morning about the one-way movement in the yen, stating that she had informed US Treasury Secretary Scott Benson about her concerns regarding the yen's single-sided weakness. Following her remarks, the yen exchange rate slightly rebounded. Kato stated after the meeting with Benson, "I expressed concern about the one-way weakening of the yen, and Treasury Secretary Benson also shares these concerns." An official from the Ministry of Finance revealed that both sides will continue to maintain close communication at the deputy minister level regarding currency movements. The meeting took place at a time when the Federal Reserve is facing new legal challenges from the Department of Justice, sparking concerns about the potential political interference in monetary policy. Federal Reserve Chairman Jerome Powell stated last Sunday that the central bank has received subpoenas from a grand jury, and his testimony regarding the headquarters renovation in June may face criminal charges. Takayuki Tominaga, a Central Tanshi FX trader, analyzed, "After Kato's warning, there has been a trend pushing the yen higher. At the same time, concerns over Powell's political pressure have put pressure on the dollar." In 2024, Japanese authorities intervened in the foreign exchange market four times when the yen approached the 160 level, setting important reference points for potential future actions. Kato emphasized the "one-way movement," pointing to the disorderly market movements that officials may intervene further in. When the yen fell below the 157 level in December last year, Kato had warned that Japan could "take action freely at any time" to intervene in the market.