# Japan Election Mandate and US Market Volatility

**Podcast:** Bloomberg Daybreak: Asia Edition
**Published:** 2026-02-09

## Transcript

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Welcome to the Daybreak Asia Podcast.
I'm Doug Chrisner.
We have a rally underway in Japanese equities.
This is after Prime Minister Sonae Takeichi managed a historic landslide win in Sunday's snap election.
And the local broadcaster NHK is reporting Takeichi's ruling Liberal Democratic Party has secured a two-thirds supermajority in the lower house.
Now the outcome gives Takahichi a mandate to push ahead with some bold economic plans to fuel growth.
So to help us understand what this outcome means for markets, we are joined by Shantaro Takauchi, Portfolio Manager at Matthews Asia.
Shintaro joins us from San Francisco.
Thank you for being here.
Can I get your take on whether or not you're really surprised by this outcome in any way?
So Takeichi is intending to do a lot in terms of stimulating the economy.
She's going to accelerate talks on a tax cut for the sales of food.
She's also pledging to ramp up defense spending.
Is that really what the equity market is focused now on?
I mean, the largesse of the fiscal stimulus.
Yes, I think last night's landslide victory enables her administration to put push for the agenda.
The focus area of investments will be in growth areas, such as science, technology, semiconductors, defense industry, uh, digital infrastructure, and also strategic supply chain resilience.
And also at the same time, uh they they have been um announcing a uh a tax cut on food and beverages uh only for the two years.
Uh so that is also uh in action and I think the market is reacting on that.
It's interesting if you look at the currency market today.
When Asian trading began, the yen showed a little bit of weakness, but I'm seeing a strengthening yen right now at around 15680.
Is this really a part of her strategy to keep the yen a little weak so that you can have some of the exporters benefit from that?
I think in part um the range between 140 to 160 yen uh to the dollar is our base case.
And so long as it's in within the range, I I think the government is not making any kind of push like to lower or you know, weaken the currency at this moment.
Another thing is the Minister of Finance, uh Satsuki uh Katayama has uh reiterated the suspension of the food sales taxes only for two years and will not issue uh fresh government bond for this.
So I think this also uh helped.
Um, not like a yen sliding too much.
What are you seeing in the Japanese bond market and how may that impact some of the big banks in Japan?
I think overall, uh currently the year old curve itself, uh you know, of course, uh you're seeing the longer end of uh the bond yield uh spiking, uh, but the shorter end uh is is relatively uh stable at this moment, although you know, compared to a couple of years ago, it's obviously higher, but it's still much lower than uh the inflation rate itself that is happening in Japan.
Um I think overall uh what we need to watch, especially as an uh as an equity investor, is that the nominal GDP growth of Japan is um for the first time in a very long while is meaningfully um growing.
And uh we view nominal GDP growth as a proxy of uh top line growth of opportunity in domestic Japan.
Nominal GDP in Japan has been stuck around 500 trillion yen for almost 30 years, uh until uh it started to rise uh in in the past uh four or five years.
Global markets right now are consumed with the AI trade, and we know that SoftBank will be releasing earnings in the coming week.
Will this give us any indication of what is happening in technology industries within Japan?
I think um a lot of currently a lot of the uh so-called thematic names like the AI and defense, uh, it is a fact that they're trading at all-time high valuation levels, and the momentum is is is very um uh I would say uh hot right now.
Um, however, uh if you look at the overall market, uh it is still trading at probably the high end of the uh 10-year range.
Uh, but also at the same time, uh, because of the top-line growth that is that we're seeing as a market overall, and also uh the general improvement in corporate governance uh has actually um enabled many of the Japanese corporates to improve their return on equities.
Uh so that is also leading to an upside in the evaluation of multiples in our view for Japan market overall.
Where do you stand on the deflation story in Japan?
I mean, for a couple of years now, overall consumer prices have been moving higher.
I think we're in, I would call it a inflationary environment, but we know what the history is.
For three decades at least, Japan was mired in deflation.
Have we begun to see a significant turn here?
Is it uh a pivotal moment, do you think?
One thing about uh this landslide victory is that the current government and also uh the people in Japan actually supported uh Takaichi's agenda to basically uh grow itself.
Um for a very long time, uh Japanese government uh understandably uh because of its higher debt to GDP ratio has more inclined to basically shrink to fit.
Um and that's one of the reasons why uh the uh inflation and also the nominal GDV growth of Japan has been so inemic for for multiple decades.
But whether this Takaichi's um agenda will succeed or not, we shall see.
But uh I think it's it's a bold move in in in the direction uh towards growth.
That's uh uh that's a a key difference uh compared to the uh other uh generations.
So before the results of the snap election, the equity market in Japan was not far from record highs.
Is being long Japanese equities an overcrowded trade right now, do you think, or is there still a lot more in terms of upside?
So currently the valuation level of MSCI Japan, for example, is trading about 17 times four 12 month earnings, uh, which is the high end of a 10 year range.
Uh however, the earnings revisions, uh, the consensus earnings are trending up, uh, mainly driven by the technology and the financial sector.
And also um going forward over the next two years, you're seeing three to four percent top line growth and high single digit to low double digit uh earnings growth for uh Japan equities.
So even at this valuation level, it is not an overheat at this moment.
And also another thing is I think the global investors are still well underweight uh Japan overall in terms of their uh allocations, and uh that hasn't uh changed um for a very long time.
So I mentioned that Takeichi is planning to ramp up defense spending.
When you look at that agenda, are you inclined to put money to work in certain Japanese defense contractors, or would you look elsewhere?
Uh so we do have exposure in Japanese defense stocks, um, but also at the same time, we're well aware of the valuation levels.
So uh we are in basically we're mindful of the valuations and we see opportunities in the growth areas that is trading at basically relatively uh lower valuation levels.
Um and that's where we focus on right now because I I think over the course of the last 12 months it was all about momentum, and a lot of times uh most expensive stocks did the did the best.
Um but I think in time um these these kind of like valuation differences uh should should start to shrink.
Last year you know well that uh prime minister Takeichi made some comments on the defense of Taiwan, which upset leadership in Beijing, and in turn uh China restricted group tourism to Japan.
Are you seeing evidence of fewer tourists in Tokyo?
I think for the uh Chinese tourists, uh the group tours are uh are are restricted at this moment.
Uh and you're seeing these um uh monthly sales number of retailers uh seeing some uh impact.
Um however, the individual tourists are are still coming in, um, although it it has slowed down.
And um uh and also a lot of the retailers, also um companies that are exposed to the inbound tourism um have been making efforts to uh diversify um the the source of inbound tourism, uh not just from China, but uh also in other regions such as uh Korea, Taiwan, uh, Australia, and even the United States.
So we heard from the Prime Minister after the SNAP election, and she's looking forward to a visit at the White House in the spring with the aim of strengthening the alliance between Japan and the United States.
When you look at that relationship, whether it's politics or trade, what do you come away with?
I think Japan and uh the United States has been an ally um post-World War II, and uh and generally the relationship has been um has been very strong.
And uh I think Takaichi is very uh committed uh to keeping the relations uh in strong in that way.
Um a lot of the Japanese companies have uh exposure to the US economy, while it is it is still the largest uh economy in the world.
But I think you know, Takaichi um is trying to balance um between the US and also you know, uh trying to improve the relationship with with China as well uh after a a hiccup um earlier in her uh administration.
Are you concerned about anything in the aftermath of this election outcome?
I think over the mid to long term, given that LDP has secured two-thirds of the majority, uh, you can also say that uh they became too strong.
I'm hoping that they will not become too arrogant and and push for uh too much too far.
Um, but I think uh the coalition party, Y Xin is working together, and um uh and you know I hope that the the uh I Sheng Party will be a good balancer of uh of the LDP.
Shintaro will leave it there.
Thank you so very much uh for helping us understand the nuances of the uh snap election that occurred Sunday in Japan with the local broadcaster NHK reporting Prime Minister Takeichi's ruling Liberal Democratic Party has secured a two-thirds supermajority in the lower house.
Shintaro Takuchi is portfolio manager at Matthews Asia on the line from San Francisco here on the Daybreak Asia Podcast.
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Welcome back to the Daybreak Asia Podcast.
I'm Doug Krisner.
In the U.S.
this week, we'll get some key data points on the American economy, including that slightly delayed employment report for the month of January.
And for the stock market, momentum will be a factor, clearly, especially when you consider the influence of those trend following algorithmic funds.
Joining us now for a look at the price action is Greg Halter.
He is director of research at Carnegie Investment Council.
Greg is on the line from Cleveland, Ohio.
Thank you for being here.
We ended last week with that powerful rally.
I think the SP 500 was up two percent, finishing a week that had been characterized by quite a bit of volatility.
How would you make sense of the tape on Friday?
Well, we had um quite a bit of volatility on the downside leading into Friday.
And it appears that uh the dip buyers certainly came in in our perspective.
You know, if you look at the at least the chart of the SP and the Dow, they just gradually ticked higher throughout the day, almost closing at the high of the day with a little drop-off at the end.
But pretty amazing the turnaround and just the continual strength throughout the day.
So we had the news from Anthropic last week on their new AI model that will allow applications more focused to certain businesses, and I'm thinking immediately of the legal profession, also financial research and analysis.
That really hit many of the software stocks very hard last week.
Are we kind of in a weird way uh running a risk of avoiding the message from anthropic when it comes to some of these software issues, or was that an overreaction in your view?
It's hard to say, obviously.
Time will tell.
There's certainly been some big impacts.
You know, look at fact set.
You can take a look at uh Gartner symbol IT, which is down quite a bit as well.
You know, some of these names have really taken a shellacking here, and whether or not that's warranted remains to be seen.
I think the companies that have data access to data will be um more valuable, if you will, but something like an Adobe where you can just create a prompt and maybe you know outmode what they do, they could be more at risk.
And certainly that stock has been uh troubled for a good year now.
Goldman Sachs has what it calls its panic index, and I think it was on Friday it reached 9.22, a level that's not far from maximum fear.
Are you seeing any evidence that maybe even with that rebound that we had Friday, that there is some complacency setting in?
Uh certainly possible from that standpoint, but you know, we've seen some pretty dramatic moves in in other things, including Bitcoin's down 50%.
On the other hand, gold and silver soared.
The silver went from 20 to 120 or higher, and now it's pulled back to 80 or so.
There's been a lot of volatility in other things besides stocks as well.
And you have this whole predictions market, which is adding another level of, I don't want to call it speculation, but I guess it's speculation or gambling, or you know, making predictions on the future on top of the zero day options.
There's just a lot of ways for things to be traded these days that we certainly didn't have five years ago.
And there's a lot of volatility on a day-to-day basis in general either stocks and or commodities and or items, if you will, bets, if you will.
And that's something we haven't had in this format, at least historically.
So how that plays out, that's that's going to be very interesting to follow.
So how are you dealing with that when you're putting capital to work in the market, or whether you're watching the positions that you've put on, let's say on the long side of the trade, how are you handling the volatility?
At Carnegie Investment Council, we're a traditional long only manager.
We seek to find the best companies we can that have growing revenues, growing cash flows, growing earnings.
Some of those are getting disrupted.
You know, Adobe had been in our portfolios, and we have exited over the last year or so.
We look for companies that have some sort of moat that can continue to do well.
You know, you look at Google a year, Alphabet a year ago, and that stock was kind of being left in the scrap heap, and then all of a sudden, uh, maybe not.
And it's done very well.
So you just don't know.
We're trying to play the role of time in the market, is more important than timing the market, and we'd like to have diversified portfolios.
So we're not placing bets on you know three or four or five stocks.
So let me get your view on the macro because we have a big week for US data that slightly delayed employment report for January, and then we have CPI data and retail sales as well.
How are you are you viewing the American economy?
We think the economy is actually pretty in in pretty good shape.
I mean, I look at the Red Book sales numbers that come out every week, and it seems like it's up five, six, seven percent every week on a year-over-year basis.
That seems to be good.
You've seen a lot of uh, we think employment of funds into manufacturing facilities, not just data centers, because companies are able to write this off immediately.
Both the uh the uh the equipment, the buildings, the RD relative to the tax bill, that's a huge incentive.
So any company who's thinking about doing something, this gives them great impetus to be able to do that.
You know, is this a one-time boost or is this multi-year?
Certainly, you don't build a factory in a week or a month or a year, it's gonna take some time.
So, what we haven't seen is employment growth happening, it's just been kind of stagnant here.
So that's the the one rub.
We also haven't really seen inflation from tariffs, which some had had thought would happen.
That hasn't happened yet.
Will it happen?
Who knows?
We do think that the U.S.
government spending needs to get under control.
And if it doesn't, uh, that could cause inflation down the road.
So to what extent is there any degree of urgency to cut interest rates again?
I mean, it seems as though the market's view is that the next rate cut, if one does occur, won't happen until June.
Does that kind of sit with your thinking?
It seems to be, I don't know if there's any great rush from that standpoint.
The issue that needs to be addressed somehow, and it's probably a combination of factors, um, is the housing market.
It's it's really been in a quagmire for a good four years.
And I don't know the how you solve that because you've had prices go up, rates have started to come down, but they're still high.
Somehow we have to break this log jam, and I don't know what the answer is there.
Lower rates is part are part of it, but certainly not the whole thing.
Greg, we'll leave it there.
Thank you so very much.
Greg Halter is Director of research at Carnegie Investment Council, joining us from Cleveland, Ohio, here on the Daybreak Asia podcast.
Thanks for listening to today's episode of the Bloomberg Daybreak Asia Edition Podcast.
Each weekday we look at the story shaping markets, finance, and geopolitics in the Asia Pacific.
You can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel, or anywhere else you listen.
Join us again tomorrow for insight on the market moves from Hong Kong to Singapore and Australia.
I'm Doug Chrisener, and this is Bloomberg.