The Tokyo stock market extended its gains on October 29, with the Nikkei average closing at 38,903.68 yen, up 298.15 yen or 0.77% from the previous trading day. Despite recent significant political changes in Japan, the market has shown resilience, with multiple positive factors maintaining the upward trend.

Political Landscape Changes and Market Response:

In the House of Representatives election held on October 27, the ruling coalition of the Liberal Democratic Party and Komeito saw a significant reduction in seats, failing to secure a majority. However, the resolution of this political uncertainty has triggered positive market reactions. Overseas speculative funds that previously held short positions in Japanese stocks began to cover their positions, driving market strength.

Strong Performance in Financial Sector:

Japanese financial stocks strengthened overall, influenced by rising U.S. long-term interest rates. Banking, securities, and insurance sectors gained investor favor due to expected improvements in interest rate spreads. Notable gains were recorded by bank stocks such as Mitsubishi UFJ and Sumitomo Mitsui, securities firms including Nomura and Daiwa Securities, and insurance companies like Dai-ichi Life Holdings and Tokio Marine.

Positive Policy Expectations:

Democratic Party for the People leader Yuichiro Tamaki’s willingness to cooperate with the ruling party on important bills has sent positive signals. Markets generally expect the LDP to introduce policies to boost real wages, including tax cuts and reduced social insurance premiums, ahead of next summer’s Upper House election, further boosting investor confidence.

Toyo Securities strategist Ryuta Otsuka noted that the ruling party’s insufficient seats might reduce the likelihood of market-unfavorable policies, such as financial income tax measures. Meanwhile, expectations for wage-boosting policies like tax cuts continue to support market sentiment.

Overall Market Performance:

• TOPIX rose 24.24 points to 2,682.02, up 0.91%.
• JPX Prime 150 index gained 8.77 points to 1,207.20, up 0.73%.
• TSE Prime market trading value reached 3,592 billion yen.
• Trading volume totaled 1.587 billion shares.
• 1,275 stocks advanced, 323 declined, and 48 remained unchanged.

Individual Stock Performance:

• Rising sectors: Financial stocks broadly stronger, Nitto Denko and Sakura Internet gained on positive earnings.
• Declining sectors: Chugai Pharmaceutical and TOTO faced selling pressure, automotive stocks like Suzuki and Toyota showed weakness.

Market Outlook:

Analysts believe Japanese stocks maintain upward momentum as political uncertainties subside and potential economic stimulus policies are anticipated. However, caution is warranted regarding external factors such as U.S. bond market volatility.

Overall, despite political changes, Japanese stocks have demonstrated strong adaptability, with investors maintaining cautiously optimistic views on Japan’s economic prospects. Policy support expectations, combined with returning overseas capital, continue to provide market support.