Quick Post LDP Election / Pre-Market Open Note

This is just a very quick cross-asset flagging + series of my Notes and commentary from this weekend’s developments around Sanae Takaichi winning the LDP leadership race.

FX

JPY getting crushed vs everything - USDJPY may break into the 150 handle by end of week, if not end of day, with USDJPY ~151 (150.90) next immediate-term “resistance.”

The JPY weakness / USD strength is even strengthening USD broadly, with other majors like EURUSD down (though not by much).

Equities

CME-listed NKY futures opened and are trading well over +4% at the moment - which means my remaining open shorts are about to get destroyed (more on that later).

Single-stock wise, watch 7011 Mitsubishi Heavy (defense large cap) which should get a boost on a PM Takaichi, with shares -5% over last week. Here’s how Japan cash equities closed on Friday heading into LDP elections from TOPIX Sectors:

I suspect they will all be very deeply green at close today.

And of course, watch for upside on other global DM indices - namely NDX to follow NKY (i.e. NDX continuation of Sept following NKY upside per my prior note).

JGBs / USTs

JGB yields - watch both the front-end (if/as BOJ rate hike expectations reprice) and of course long-end yields. This isn’t necessarily an automatic surge in yields in the wake of Takaichi’s win - last week saw weak demand at JGB auctions, but more a reflection of a “wait and see” lack of activity than a rejection of issuance offerings in my view, in which case some of the on-hold buying may come in and subdue otherwise higher yields.

Gold

Just flagging Japan ticker 1540 Japan Physical Gold ETF (the “GLD of Japan”) and its insane surge that diverged as much as +30% higher vs gold futures in Sept on massive volume as systematic momentum flows pushed this ticker to levels too irrational for even the arbs to want to touch. This likely won’t have much impact on spot gold price action itself, but flagging this just in case it may / does

And by the way, yes BTC back to breaking new all time highs this weekend and Japan LDP elections are probably not coincidental

IMPORTANT TO NOTE FOR IMMEDIATE-TERM:

What comes “next” - as in, now/today for Takaichi is assembling her cabinet. Takaichi took a slightly more moderate stance towards the last days of the elections - which many are attributing to a large part of her win - but more importantly, an effort to be able to work across the opposition minority parties needed to pass legislation. If Takaichi maintains this “watered-down” (more moderate in rhetoric) stance via the personnel she chooses in the immediate-term to fill her cabinet and appoints the familiar LDP heavyweight faces (particularly Finance Minister - most critical appointment obviously), then markets may sharply re-re-price a Takaichi administration from her signature “sekkyoku-zaisei” (aggressive fiscal policy and JGB issuance), to just business as usual - as if Koizumi or any of the other guys won.

One headline can reverse these market moves - most of which are forced position exiting, and not a “vanishing of uncertainty” - uncertainty begins here and now, not ends.

Finally, in case you missed it, here is my Note / X post on clarifying who Takaichi is and why she won (why others lost) - because I’ve been monitoring foreign media across the world over the weekend, and my god do they not know (or not care to present) the facts.

“🇯🇵Takaichi = right wing conservative”

Maybe so, but she didn’t win on these traits, she won despite them

sekkyoku zaisei (aggressive fiscal policy) + anti establishment is the consistent theme that won this + recent 🇯🇵elections (& lost for non-sekkyoku zaisei)

So, while you will hear all about her right wing fringe extremism (& let’s be frank - there’s no genuine “fringe extreme” within LDP, a 7 decade monopoly ruling party & definition of the establishment for which a furious public suffering deeply neg real wages has been pitchforking out of office) - Takaichi, who was the same “right winger” just 12 months prior & lost to Ishiba, didn’t NOW win because of this

Her LDP party is crumbling under the weight of being the ruling party since WW2 (i.e. owns all of the good + bad w/no one else to blame) who have been singularly focused on winning elections, rather than actually governing via prioritizing / actually serving 🇯🇵everyday citizens needs

There is no “fiscal restraint” ANYWHERE on 🇯🇵political spectrum & 🇯🇵everyone knows this. Deficit spending itself isn’t their (main) issue - their issue is blind autopilot deficit spending + taxing that results in absolutely nothing changing.

What they want (& thereby vote in) are those with actual policy conviction - sekkyoku zaisei. What they will not tolerate for 1 more moment is yet another autopilot taxing + spending + borrowing asshole with no vision, no core belief/ideology, just another wishy washy “let’s see what’s polling well & promise that” self-interested (non)representative title-seeking office holder. PM 🤡Ishiba was/is the epitome of that - but he really is just another modern day LDP creature & product of LDP culture. LDP members who blocked Takaichi’s win vs Ishiba this time last year (only to then pick Takaichi today) deserve Ishiba’s 12 months of LDP destruction - though people of 🇯🇵 certainly don’t deserve it

Takaichi didn’t win - she survived as her opponents were outright rejected, just like LDP disasterous / minority opposition victorious 🇯🇵Upper House races. She’s the most / only candidate openly & vociferously embracing sekkyoku zaisei, & doing so as an authentic core policy belief.

We can argue whether or not that economic policy approach is net-“good/bad” (though I really don’t give a fuck either way about my own / anyone else’s personal opinions on what they think)- as long as we understand WHY Takaichi won, & more importantly who/what (non)ideas DID NOT WIN.

& this is also why markets are trading this as a binary outcome: Takaichi win or loss.

Btw, full circle & to set the record straight: she didn’t “win because she likes to visit 🇯🇵Class-A war criminals’ burial sites at Yasukuni shrine so as to piss off 🇨🇳🇰🇷,” a MSM will be flooding you with if it hasn’t already - her “too far right wing nationalism” reputation was a liability. Again, she won DESPITE this, not BECAUSE of it.

& also again, the average 🇯🇵voter suffering cost of living crisis couldn’t care less about this as an “issue”

I’m not saying all this in some defense of Takaichi. Good for her, & I don’t give a fuck either way (& I genuinely mean both).

I do / only give a fuck about:

1) what moves green & red blinking tickers

2) providing nuanced reality & context to the international community if/when they aren’t receiving it

Will certainly come back with more - but needed to get this out pre-Asia open, as the market reaction is shaping up to be a lot bigger than even I had expected.

This will be a truly global, cross-asset market moving day driven out of Japan.

Thanks as always,

Weston