(Feb 9): Japan’s defence stocks surged on Monday (Feb 9) after Japan Prime Minister Takaichi Sanae’s historic election victory raised investor expectations that her drive to strengthen Japan’s defence capabilities will accelerate.
Kawasaki Heavy Industries rose as much as 17% to a record intraday high, helped as well by strong earnings. Other defence contractors, IHI and Mitsubishi Heavy Industries, rose more than 5%.
The Liberal Democratic Party secured a two-thirds majority in the 465-seat lower house in Sunday’s election without the help of a coalition partner, according to public broadcaster NHK. With a supermajority, Takaichi’s coalition will find it easier to pass legislation and could put the contentious issue of revising the constitution back on the table, including changes to explicitly state the right to possess a military.
With the two-thirds threshold secured, “constitutional revision may also become easier to advance,” said Hiroshi Namioka, chief strategist at T&D Asset Management, adding that the election results will become “a significant positive for defence-related stocks.”
The LDP’s landslide victory also boosted expectations for looser regulations on weapons exports, which would expand business opportunities for Japanese weapons makers.
See also: Japan’s biggest nuclear plant restarts second time after hiccup
“Japan is all but set to loosen weapon-export restrictions as part of Prime Minister Sanae Takaichi’s broader military reforms, after her party’s supermajority win in the country’s snap election,” Bloomberg Intelligence analysts, including Eric Zhu, wrote in a note, adding that it will pose regional competition with South Korean arm makers.
“The way the administration’s footing has strengthened makes it easier to view Japanese defence companies’ plans to expand overseas operations more positively going forward,” said Kazuhiro Toyoda, head of Japanese equities at Schroder Investment Management. “Defence names are likely to get attention in the stock market.”
With its pro-amendment coalition partner the Japan Innovation Party or Ishin for short also increasing seats, T&D’s Namioka said voting behaviour suggested public interest in defence.
See also: Hedge funds revive yen-weakness trades ahead of Japan vote
An opinion poll conducted by the Cabinet Office last November through December found that an all-time high 45% of respondents said Japan should strengthen the size and capabilities of its Self-Defence Forces, underscoring public support for the government’s defence policy agenda.
Uploaded by Arion Yeow
