Fumio Kishida was re-elected as the Prime Minister of Japan, and the Japanese stock market may usher in a new round of sector rotation.

According to the Global Times, on November 11th, at the 215th Special Session of the Japanese Diet, Fumio Kishida, the President of the Liberal Democratic Party, was elected as the 103rd Prime Minister through the Prime Ministerial Nomination Election of both houses. However, the ruling coalition of the Liberal Democratic Party and Komeito suffered a heavy defeat in the early election, failing to secure a majority of seats in the House of Representatives, and could only form a minority cabinet this time.

Some analysts believe that the constrained government of Fumio Kishida is still 'weak', and concessions to the opposition party may help promote the development of retailers and electrical utilities, benefiting public utility and technology stocks, while the prospects of defense companies and stocks related to corporate governance are less clear.

Concessions to the opposition party will benefit retailers and public utility stocks.

It is widely expected in the market that as Fumio Kishida needs the support of minor parties, the new Prime Minister may reduce taxes to increase workers' disposable income. Earlier, the leader of the Constitutional Democratic Party of Japan, Yuichiro Tamaki, posted on social media that his party could not cooperate with the ruling coalition unless the threshold of the 'non-taxable annual income of part-time workers' was raised to 1.03 million Japanese yen.

The Liberal Democratic Party expressed willingness to have a 'practical discussion' on this policy, but also expressed concerns about the government potentially losing revenue. Yukihiro Kawanishi, a senior strategist at Aizawa Securities, believes that if the government continues to discuss the proposed tax reduction measures, supermarket and department store stocks (retail stocks) will have room for growth.

"If the government continues to discuss the proposed tax reduction measures, supermarket and department store stocks (retail stocks) will have room for growth."

On October 31st,$Ryohin Keikaku (7453.JP)$ 、$MatsukiyoCocokara (3088.JP)$And$Shimamura (8227.JP)$ and other retail companies saw their stock prices rise by more than 1.2%, despite Japan on that day. $TOPIX (.TOPIX.JP)$ Dropped by 0.3%.

Hiroshi Namioka, Chief Strategist and Fund Manager at T&D Asset Management, stated that energy company stocks will also benefit from the opposition party's supportive stance on nuclear power:

"The Democratic Party supports nuclear energy in general, so we are unlikely to see any signs of slowing down in the government's plans to restart more reactors."

Another key potential ally of the Liberal Democratic Party, Japan Innovation Party, expressed the same desire. Within a week after the election, the indices of the electricity and natural gas sectors in the TOPIX index rose by 4.4%, outperforming the 1% increase in large cap. On October 29, just two days after the vote, a nuclear reactor located in the area affected by the 2011 East Japan earthquake was restarted, further driving the industry's development.

It is worth noting that since the Fukushima Daiichi nuclear accident in 2011, the government led by the Liberal Democratic Party has been trying to revive Japan's largely dormant nuclear industry. However, the Liberal Democratic Party's main competitor, the Constitutional Democratic Party, opposes this policy. Nonetheless, Namioka stated that the support from the Democratic Party and other parties will enable the ruling party to push forward with this policy, expecting a comprehensive increase in utility stocks.

Controversial Focus! Dim Prospects for Defense Stocks

However, the outlook for defense-related stocks is filled with uncertainty. Analysts believe that Prime Minister Shigeru Ishiba's plan to increase Japan's defense budget could become a controversial focal point between the two parties. Currently, there are disagreements in the parliament over how to fund the planned increase in military spending, and trade negotiations with the incoming Trump administration may be delayed due to increased government divisions, affecting defense stocks.

Before the electoral defeat, the Liberal Democratic Party had indicated plans to raise corporate taxes, income taxes, and tobacco taxes to fund additional military expenses, while the Democratic Party, despite supporting strengthening national defense, explicitly stated its opposition to tax increases.

Economist Yuko Iizuka from Asset Management One said:

"As the ruling party is now in a minority position, they have no choice but to coordinate with the opposition."

Chris Smith, Co-Manager of the London Polar Capital Japan Value Fund, believes that disputes between parties may slow down the overall speed of policy-making, thereby delaying decisions by future governments on issues such as corporate governance.

Bullish on technology stocks

In the vote on Monday, Shigeru Ishiba pledged a 10 trillion yen (approximately $65.1 billion) assistance plan for the ai and semiconductors industries by 2030. Analysis suggests that ai-related stocks may gain long-term upward potential due to Ishiba's re-election.

The stock prices of chip-related companies have fluctuated as a result, with chip component manufacturers$Renesas Electronics (6723.JP)$Affected by this news, coupled with market speculation that the company may face competition from American rivals.$Monolithic Power Systems (MPWR.US)$ Seizing market share, the stock price rose 10% on Tuesday, ultimately closing up 8.2%.

Editor/Rocky