Investors like the new-look Japan government

Global money managers are circling back to Japan's stock and debt markets, drawn by the promises of its new reflationist government and a desire to diversify from pricier US and European markets.

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Flows into yen-denominated stocks and bonds have been sustained this month, fund managers said, as investors watched Japan's coalition partners wrangle and cut deals while positioning for right-winger Sanae Takaichi to become the country’s premier. Takaichi was eventually elected the country’s first female prime minister on Tuesday, reported Reuters.

Her promises of stimulative spending, tax breaks, low interest rates and investments have powered Japan's Nikkei to record highs and are spurring investors to think about diversifying some cash from Europe and a frothy-looking Nasdaq.

Takaichi's election along with “the psychological impact of having finally overcome the ‘lost decades’ of Japanese stocks, can certainly spur inflows,” said Boston-based Peter Vassallo, FX portfolio manager at BNP Paribas Asset Management. “It could dovetail with concerns about US valuations and policy uncertainty to encourage some investors to reallocate away from what have become highly concentrated US positions to Japan on the margin.”