Learn from history: If Takamii Wanao wants to hold early elections, will the Japanese stock market soar?

If Japanese Prime Minister Sanae Takichi announces early elections as reported by local media, historical experience suggests that investors in the Japanese stock market will benefit at least in the short term. Data shows that in the 12 lower house elections held since 1990, the TOPIX index has risen 10 times during the approximately one month period between parliament dissolution and new elections. On Tuesday, the Japanese stock market rose. Citigroup analysts Ryota Sakagami and Keishi Ueda pointed out in a research report, "The market is gradually forming a consensus - a high cabinet approval rating implies a high probability of the Liberal Democratic Party winning, thereby building a stable political framework. As a result, the initial response of the Japanese market may once again see the resurgence of the 'Sanae Takichi trade' trend." Some analysts also expressed similar views, suggesting that if the highly rated Japanese Prime Minister Sanae Takichi decides to hold early elections, the Japanese stock market may continue to rise in the coming months. Chief Technical Analyst Eiji Kinouchi of Daiwa Securities stated in a report last week that if Sanae Takichi wins the early elections, expectations for stable economic policies in the market may rise, which could lead to a six-month rally in the Japanese stock market. He also mentioned that if the lower house is dissolved in January, the Nikkei 225 index could reach 68,000 points between July and September, about 30% higher than last Friday's closing price. In the three elections where the Liberal Democratic Party won the most seats - Junichiro Koizumi's victory in 2005, Shinzo Abe's second cabinet formation in 2012, and 2014 - the stock market saw the largest gains six months later, with increases of 44%, 70%, and 18%, respectively. During elections, as the market expects the government to remain stable and implement economic policies, stock prices tend to rise, with high approval ratings typically reinforcing this expectation. It was reported that Takichi's approval rating in December last year was 64%, higher than Koizumi's 50-60% range in 2005 and similar to the level during Abe's cabinet formation in 2012. However, not all early gains can be sustained. In the 12 elections, there were 6 instances where gains turned into losses six months later. In a report on Monday, Sakagami wrote, "If the ruling party becomes more cautious, the possibility of dissolving parliament early is unlikely." He also expressed concerns that early elections could lead to criticism of prioritizing political stability over policy implementation, as well as worries about disappointing growth in ruling party seats. Sakagami mentioned that political stability is not guaranteed. The ruling coalition led by Sanae Takichi holds a slim majority in the lower house, but has no advantage in the upper house. Even if they win the election, Takichi may strengthen control in the lower house, but will still need opposition party cooperation to pass legislation in the upper house.