Political Surprises in Japan and France Catch Investors Off Guard

Political developments in Japan and France are sending shockwaves through financial markets. One element they share is surprise.

First, Japan: Japanese stocks surged to a record high after a party leadership vote made pro-stimulus lawmaker Sanae Takaichi a virtual lock to be the country’s next prime minister. Along with more government spending that could fan inflation, investors are now preparing for a dovish tilt at the central bank. The yen lost 1.8% against the dollar and sank to an all-time low against the euro. Longer-term bonds fell, with the yield on the 10-year bond hitting the highest since 2008.