Pre-election anxiety hits a ten-year high as Nikkei volatility surges, reflecting investor concerns

Glonghui, February 4th｜Due to the extremely high level of market uncertainty ahead of Japan’s February 8th election, investors are experiencing unprecedented anxiety. An analysis by Yoshitaka Suda, Senior Cross-Asset Strategist at Nomura Singapore, shows that the implied volatility of the Nikkei 225 Index has surged significantly before the election. Suda stated, “Although the ruling Liberal Democratic Party remains ahead in pre-election polls, investors are still full of doubts.” His research indicates that as of last Friday, this indicator had reached 30.6%, surpassing the 28.4% level before the 2024 previous House of Representatives election, setting a new record high for all pre-election periods in the past decade. Rising implied volatility typically reflects investors’ perception of increased environmental risks and a shift toward a bearish outlook. Hideyuki Ishiguro, Chief Strategist at Nomura Asset Management, pointed out: “Even if a landslide victory by the ruling party may trigger an immediate positive market reaction, if the yen depreciates and interest rates rise rapidly due to fiscal concerns, there is still a risk of a sudden market reversal.”