ProLogis: The yen has appreciation potential

ProLogis stated that Japan's first female Prime Minister, Sanae Takaichi, is preparing to hold early elections in early February, hoping to capitalize on high public support to secure a majority for the ruling Liberal Democratic Party in the Diet. The financial market reacted strongly to the election prospects. The Japanese stock market reached an all-time high, with expectations that Takaichi's victory would restore political direction and pave the way for fiscal stimulus, driving what investors call the "Takaichi trade," particularly in areas such as artificial intelligence, nuclear energy, and defense.

However, the yen weakened due to market concerns over a shift towards looser fiscal policy, recently hitting an 18-month low, increasing the likelihood of the Bank of Japan raising interest rates earlier. For Takaichi, holding early elections is a good opportunity to gain greater policy space domestically and internationally, but failure could mean a swift end to her premiership.

Over the past year, the Tokyo Stock Exchange Index has risen more than 30%, and the bank believes that there is limited room for further market gains; the market has already priced in Takaichi's victory, subsequent fiscal stimulus measures, and expectations of yen depreciation. The market is enthusiastic about the "Takaichi trade." From current levels, there is potential for the yen to appreciate, and inflation is expected to persist, especially as spring wage negotiations begin. This will allow the Bank of Japan to cautiously continue tightening monetary policy. Given the limited room for stock market revaluation, stock selection is expected to become more important. The election is likely to bring more new investment opportunities