Japanese Market Faces Uncertainty Ahead of February 8 Election

Investors are experiencing unprecedented anxiety due to the high level of market uncertainty ahead of Japan's February 8 election. According to Jin10, Yoshitaka Suda, a senior cross-asset strategist at Nomura Singapore, has analyzed that the implied volatility of the Nikkei 225 index has surged significantly before the election. Suda noted that despite the ruling Liberal Democratic Party leading in pre-election polls, investors remain skeptical. His research indicates that as of last Friday, the index reached 30.6%, surpassing the 28.4% level seen before the 2024 House of Representatives election, marking the highest record in the past decade before any election. Rising implied volatility typically reflects increased perceived environmental risks and a bearish outlook among investors. Hideyuki Ishiguro, chief strategist at Nomura Asset Management, pointed out that even if the ruling party wins decisively, which might trigger an immediate positive market reaction, there is still a risk of a sudden downturn in the stock market if the yen depreciates and interest rates rise rapidly due to fiscal concerns.