(Adds comment) TOKYO, Oct 4 (Reuters) – Sanae Takaichi is likely to be Japan's first female prime minister after winning the race on Saturday to lead the ruling Liberal Democratic Party. The former internal affairs minister, a conservative nationalist with an expansionary agenda, is expected to replace Prime Minister Shigeru Ishiba since the LDP is the largest in parliament. Below are comments on the outcome: HIROKI TAKEI, STRATEGIST, RESONA HOLDINGS "This could be considered a positive surprise for stock prices. In the short term, Japanese equities are likely to react with gains. Prior to the announcement, overseas betting sites had viewed Farm Minister Shinjiro Koizumi as the frontrunner. "Recently, the Nikkei average has been trading near its highs, with an increase in the ratio of short-selling and a buildup of margin short positions. If short-covering is triggered, the rally could gain momentum, potentially pushing the index toward the 47,000 level. "On the policy front, Takaichi has strongly emphasised economic growth, which could benefit sectors such as semiconductors, artificial intelligence (AI), space-related industries, defence enhancement, and national resilience. After the Japan-U.S. tariff agreement, there was a shift in capital from domestic demand stocks to export-oriented ones, but domestic demand stocks may once again become attractive investment targets. "The fact that she is the first female president of the LDP could strongly signal change to investors. If foreign investors, anticipating structural reforms, begin buying physical shares, a moderate medium- to long-term uptrend could be expected. However, if the rally is led by short-term players through futures trading, it could reverse quickly, so caution is warranted. "In terms of cooperation with opposition parties, the Democratic Party for the People is likely to be the closest in terms of policy alignment. In the short term, the stock market may focus on a growth-driven rally, but fiscal discipline could become more relaxed. As the market stabilises, concerns about over-valuation may emerge, and attention will need to shift to long-term interest rate trends." YOSHINOBU TSUTSUI, CHAIR, JAPANESE BUSINESS LOBBY KEIDANREN "Takaichi is a seasoned politician with deep expertise across a wide range of policy areas, including the economy and foreign affairs. "As the first female (LDP) president, we expect her to revitalise the LDP and address Japan's pressing challenges, including tax, fiscal and welfare system reform, labour market reform and energy security. "We hope that, under the new leadership, the LDP will unite and, together with its coalition partner Komeito, swiftly establish a stable political framework capable of steadily advancing key policies." TAKAHIDE KIUCHI, EXECUTIVE ECONOMIST, NOMURA RESEARCH INSTITUTE "Takaichi adheres to the traditional reflationist view that the government should determine the broad direction of monetary policy. As such, there is a possibility she may intervene in the Bank of Japan’s policy operations going forward. The interest rate hike expected in October – already priced in by about 60% of the market – may be delayed by the BOJ, as a failed hike could invite political interference. That said, unless the U.S. economy weakens significantly, I don't believe the Takaichi administration would halt the BOJ’s overall policy of rate hikes. "Among the five candidates, Takaichi has advocated the most expansionary fiscal policy. This could lead to rising interest rates, a weaker yen, and higher stock prices in financial markets. However, since the LDP is a minority ruling party in both houses of the Diet, cooperation from opposition parties is essential to implement her policies. Therefore, I expect the more extreme aspects of her proposals will be diluted during the legislative process. "To expand its coalition under Takaichi, the LDP would likely look to parties with similar policy positions. The Sanseito party is ideologically close, but a coalition with them wouldn't help secure a majority in the lower house. Realistically, the Democratic Party for the People may be the most viable partner. "The emergence of Japan's first female prime minister would likely be welcomed, especially in Western countries. On the other hand, her hawkish foreign policy stance may raise concerns among Asian nations. "While Takaichi has clearly articulated her positions on foreign and security policy, her limited hands-on experience as a cabinet minister raises concerns. This also casts some doubt on her compatibility with U.S. President Donald Trump, who is visiting Japan this month. While they may align on strengthening Japan's defence capabilities, any overt resistance to U.S. demands could lead to friction." TOHRU SASAKI, CHIEF STRATEGIST, FUKUOKA FINANCIAL GROUP AND FORMER BANK OF JAPAN OFFICIAL, TOKYO "In the last speech between Koizumi and Takaichi, I think Takaichi was a bit better, so that was supportive of her victory. So it's not a huge surprise. "Takaichi was the most popular candidate among the non-congressional LDP members and that was a key factor for her victory. "Because of the support from the non-congressional members of the LDP, her cabinet is likely to be very popular, and therefore influential on monetary policy. So I think the BOJ may have some difficulty in raising rates. "I think on Monday morning, the yen is going to depreciate. Dollar-yen may try 150 or beyond, but these kind of reactions tend to be short-lived. "In stocks the strong trend is likely to continue. It's a bit difficult to say on the JGB market because Takaichi will make it difficult for the BOJ to raise rates, so yields will go lower, but at the same time, she's likely to expand spending, which is negative for bonds. A steepening of yield curve is a possible reaction. "Probably the financial market will take this result as a positive, at least at first. "It will be interesting to see how her dialogue goes with Trump. She will probably be a tough negotiator." TOMOHISA ISHIKAWA, CHIEF ECONOMIST, THE JAPAN RESEARCH INSTITUTE, TOKYO "Takaichi talked about 'responsible expansionary fiscal policy.' The question is whether this approach can achieve both restoring fiscal health and economic growth. I'd like to hope there's greater consideration for restoring fiscal consolidation than in the past. "That said, she has said that deficit-financed bonds are also among the options, so in terms of continuing Abenomics, I think we must also be mindful of the risk of fiscal expansion. "I do think it's become harder for the Bank of Japan to raise interest rates. "Ultimately, if 'responsible expansionary fiscal policy' means money flows into high-growth sectors rather than simply being handed out, then stocks would rise and the yen wouldn't weaken excessively." KAZUTAKA MAEDA, ECONOMIST, MEIJI YASUDA RESEARCH INSTITUTE, TOKYO "Among the five candidates, Takaichi would represent the sharpest departure from fiscal hawk Prime Minister Shigeru Ishiba’s policies, which could be welcomed by equity markets given her stance on fiscal expansion. "During the leadership race, Takaichi toned down her more radical proposals, including withdrawing her earlier suggestion to cut the consumption tax. However, if she were to revive such proposals in response to demands from major opposition parties, it could lead to higher interest rates, a weaker yen, and accelerated inflation – developments that may not help restore public trust. "Overall, there is skepticism surrounding Takaichi’s ability to manage the administration effectively. "On monetary policy, Takaichi is not seen as supportive of interest rate hikes, which could make it more difficult for the Bank of Japan to proceed with tightening. While rate hikes may not be ruled out entirely, the central bank could adopt a more cautious and gradual approach. Depending on inflation trends, the next rate hike may be delayed until early next year." MARI IWASHITA,…
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