Takaichi trade: Stocks rally, yen weakens as Japan elects new PM

Sanae Takaichi, known as Japan's "Iron Lady," has been elected as the country's first woman prime minister, sending domestic stocks soaring to fresh highs.

Takaichi, a conservative and the protégé of former Prime Minister Shinzo Abe, secured majority votes from both the Lower and Upper Houses of parliament. She is Japan's fourth prime minister in five years.

The leader's victory followed her Liberal Democratic Party forming a coalition with the right-wing Japan Innovation Party, known as Ishin.

Her win fueled the so-called "Takaichi trade" - which refers to the recent rally in Japanese equities and weakening of the yen amid bets on Takaichi doubling down on fiscal stimulus and backing a looser monetary policy.

The benchmark Nikkei 225 index (NKY:IND) soared as much as 1.5% to a new all-time high on Tuesday, just shy of the 50,000 level. The index had risen 3.4% on Monday after LDP's coalition deal.

The yen (JPY:USD) weakened against the greenback, trading at ~151 per U.S. dollar, whil the 10-year JGB yield was down 0.5 basis points at 1.66%. 

Takaichi is set to name Satsuki Katayama as Japan's next finance minister, which would make her the first woman in the role.

"I'm not sure whether Katayama is an advocate of expansionary fiscal policy, but her views deep down probably align with those of Takaichi," said Hiroyuki Machida, director of Japan FX and commodities sales at ANZ, as quoted by Reuters. 

"She'll know how to find sources of revenue if Takaichi wants to expand fiscal spending. Personally, I think this appointment will accelerate 'Takaichi-trade'," he added.