Nikkei Tumbles as New PM Raises Concerns About Higher Taxes, Stronger Yen

By Ronnie Harui

The Nikkei Stock Average saw its largest tumble in eight weeks on fears of higher taxes under Japan's incoming Prime Minister Shigeru Ishiba as well as on a stronger Japanese yen.

The benchmark index sank 4.8% to close at 37919.55, its largest one-day decline since Aug. 5. The dollar was recently trading at 141.69 yen, as the Japanese currency strengthened sharply from 146.20 yen around Friday's Tokyo stock market close.

Ishiba, 67 years old, narrowly won a vote in the ruling Liberal Democratic Party's election on Friday to become party leader, and the LDP-controlled parliament will meet Tuesday to elect him prime minister.

"Investors remain worried his goal of raising taxes for individuals' earnings over 100 million yen will have a negative impact on markets given the potential that it may target investment incomes and see taxes on capital gains raised," said Andrew Jackson of Ortus Advisors, who publishes on Smartkarma, in an email.

Ishiba, who had lost four previous runs for the leadership, had been in a race with nine candidates and had risen to the top with promises to mend the ruling party's image after financial scandals. He defeated economic security minister Sanae Takaichi, 63, who would have been Japan's first female prime minister.

Ishiba has said in the past that "growth in dividends has created a wealth disparity gap over the last 20 years that needs to be narrowed, and his overall rhetoric is undoubtedly less friendly to investors than" Sanae Takaichi, Jackson added.

Marcel Thieliant, Capital Economics' Head of Asia-Pacific, noted that although Ishiba has recently sounded cautious about the Bank of Japan's trajectory toward tighter policy, "the sharp strengthening of the yen following Ishiba's victory underlines that markets view his victory as clearing the way for further rate hikes."

Strength in the yen typically hurts the overseas earnings of Japanese exporters when repatriated to Japan.

Write to Ronnie Harui at ronnie.harui@wsj.com

(END) Dow Jones Newswires

September 30, 2024 02:45 ET (06:45 GMT)

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