Prime Minister Sanae Takaichi’s powerful Sunday victory gives her an election mandate to revitalize Japan’s economy, placing pressure on volatile financial markets.
Investors must evaluate if Takaichi’s political momentum will encourage her to boost stimulus or be more cautious.
Since she became Japan’s first female premier in October, the “Takaichi trade” has boosted domestic shares and sold government bonds and the yen.

Despite significant snowfalls in Tokyo and other locations, exit polls show Takaichi’s Liberal Democratic Party winning. Chris Scicluna, head of research at Daiwa Capital Markets Europe, expects the Monday victory to boost stocks.

Shinzo Abe’s “Abenomics” supporter Takaichi has implemented a bond-backed fiscal policy.
Her Liberal Democratic Party, which ruled Japan post-World War Two, was weak when she took government.

Negotiations between opposition and new fiscally liberal parties followed. Nomura Asset Management strategist Kota Suzuki expects economic policy stability. “Because there will no longer be a need to actively seek the opposition’s cooperation, there will be less pressure for giveaway-style fiscal expansion.”

However, increased government spending has alarmed investors worried about Japan’s biggest debt. On January 20, JGB yield curve rates reached multi-decade or record highs after Takaichi called for the snap election and halted the food sales tax.

Since Takaichi became prime minister in October, the yen has plunged 6% against the dollar and hit record lows against the euro and Swiss franc. Only US-Japan currency market intervention threats have stemmed the yen’s slide.

Takaichi’s win indicates “the Takaichi trade will revive, which means JGB yields will be under upward pressure,” said Okasan Securities chief bond strategist Naoya Hasegawa. Bond yields, stocks, and yen interact. If the yen falls fast, yields rise.”

Japan’s emboldened Takaichi’s “responsible” stimulus vow has soothed the market in recent weeks, despite rising JGB yields. The past four debt auctions have had solid demand, and 30-year JGB rates have fallen 31.5 basis points from their January 20 record high of 3.88%.