Shi Po Mao's election triggers a sharp decline in the Nikkei 225, while the Chinese stock market's surge exacerbates the decline in the Japanese stock market

Zhitong Finance APP noticed that on Monday, the Nikkei 225 index in Japan fell by more than 4%. Prior to this, Japan released a series of mixed economic data, and traders reacted to the upcoming Prime Minister Fumio Kishida's election.

In August, Japan's retail sales increased by 2.8% year-on-year, higher than the survey's forecast of 2.3% growth, and also higher than the revised 2.7% growth in July.

Kishida defeated Economy Minister Sanae Takaichi in the final round of the Liberal Democratic Party election last Friday, causing fluctuations in the yen during trading.

Ryota Abe, an economist at the Global Markets and Finance Department of Sumitomo Mitsui Banking Corporation, stated that this means the Bank of Japan "will not face any political obstacles in further raising interest rates."

Higher interest rates typically strengthen the yen, putting pressure on the Japanese stock market, where export companies make up a large proportion. A stronger yen will weaken their export competitiveness.

Due to Takaichi's victory in the first round of voting, the yen weakened against the US dollar earlier on Friday, but after the market closed, Kishida's victory in the election reversed the trend and strengthened the yen.

Abe pointed out that "almost all market participants, including Sumitomo Mitsui Banking and other political analysts, had expected Takaichi to win the election," leading to a reversal in the yen's trend.

He added that Takaichi is an advocate of low interest rates and has clearly stated that she will not support the Bank of Japan's policy of raising interest rates to stimulate economic growth.

Steven Glass, Managing Director of Pella Funds Management, holds a different view. He stated that due to the weak yen, inflation is largely still caused by "imports."

He added that as a result, raising interest rates by the Bank of Japan "makes no sense," and he also believes that under Kishida's premiership, "we are more convinced that the Bank of Japan will not raise interest rates."

Data released on Monday showed that Japan's industrial output in August fell by 4.9% year-on-year, a larger decline than the previous month's 0.4% decrease.

Industrial output in January fell by 3.3% month-on-month, a larger decline than the Reuters survey's forecast of 0.9%, and also higher than July's 3.1%.

Pros and cons

While the Nikkei index fell on Monday, the Chinese stock market was soaring. Last Friday, the mainland China's CSI 300 index recorded its largest weekly gain since 2008, and the Hang Seng Index in Hong Kong recorded its largest weekly gain since 1998 On Monday, the CSI 300 Index rose by more than 6%, leading the Asian stock market.

Brittany Lynn, portfolio manager at Magellan Capital, pointed out that when the Chinese market performs poorly, the Japanese market will perform well.

She said: "Given China's stimulus measures and the shift in market sentiment, the Japanese market will face pressure."

The People's Bank of China introduced a series of stimulus measures last week, including lowering the bank reserve requirement ratio and reducing short-term interest rates. On Monday, the People's Bank of China also stated that the mortgage rate cut announced last Monday will take effect at the end of October