Japanese Defense Stocks Climb as Takaichi Win Boosts Spending Hopes

By Jason Chau

Japanese defense stocks got a boost Monday after Prime Minister Sanae Takaichi's election victory strengthened her mandate, firming up expectations of increased defense spending.

Kawasaki Heavy Industries led the gains, hitting a record intraday high and ending the session up by almost 16% as strong earnings and guidance added another tailwind to the company's stock.

Defense contractor IHI Corp. climbed 8.7%, while Tokyo Keiki--which also reported robust earnings--rose by 7.1% and Nippon Avionics gained 7.0%. Other defense majors, including Mitsubishi Heavy Industries, Shinmaywa Industries and AeroEdge, joined the upturn.

The moves came after Takaichi's Liberal Democratic Party secured a supermajority in Sunday's lower house parliamentary election. Defense spending has been a pillar of the prime minister's campaign, and the outcome looks positive for Japan's arms producers.

Takaichi has arguably won the public confidence to reshape the country under her vision of a "resilient Japan," which revolves around pro-growth policies and national security, Natixis CIB economists Alicia Garcia-Herrero and Kohei Iwahara said.

"The government intends to expand defense expenditure to above 2% [of gross domestic product] and to solidify the U.S.-Japan alliance," they wrote in a report.

While defense names are among the initial "Takaichi trade" winners, Masahiko Loo at State Street Investment Management says the broader equities market stands to gain.

"The Nikkei or Topix index as a whole benefits from fiscal support [and] targeted investment in AI, semiconductors, defense, energy and renewables," the strategist said in a note. That, coupled with ongoing corporate?governance reform, is driving higher return on equity, buybacks and making Japan structurally more investible, Loo said.

The benchmark Nikkei Stock Average closed up 3.9% at a record high.

Though equities markets have responded with predictable enthusiasm to the prospect of strong government procurement in defense and technology, the cheer could be curtailed by continued worries about fiscal overreach, said analysts at BMI, a unit of Fitch Solutions.

"We expect this euphoria to be short-lived as the bond market begins to price in the fiscal reality of her reflationary agenda," they said.

Write to Jason Chau at [e-mail]

(END) Dow Jones Newswires

02-09-26 0534ET