An unexpected result in Japan’s leadership contest over the weekend rippled through global financial markets with the dollar surging against the yen on Sunday.
On Saturday, the ruling Liberal Democratic Party tapped Sanae Takaichi, positioning the conservative lawmaker to become Japan’s first female prime minister.
Markets had expected the more fiscally cautious Shinjiro Koizumi to win. But the LDP’s decision to go with Takaichi, who favors looser fiscal and monetary policies, could raise expectations that Tokyo will issue more debt while the central bank rethinks rate hikes.
With Japan’s debt burden already more than 200% of its GDP, the prospect of more debt-fueled stimulus spending could cause investors to demand higher rates on long-term bonds.
That in turn could add more upward pressure on bond yields elsewhere, like the U.S., which relies heavily on Japanese investors as top buyers of Treasury debt.
