The so-called “Takaichi trade” has returned to the spotlight following the decisive victory of Prime Minister Sanae Takaichi’s coalition in the lower-house election. The LDP secured 316 of 465 seats, and together with 36 seats won by coalition partner Ishin, the bloc achieved a two-thirds supermajority (over 310 seats). The result removes key legislative hurdles and strengthens expectations for fiscal expansion, including the proposed two-year suspension of the 8% sales tax on food, which markets view as supportive for economic growth but also as a challenge for Japan’s fiscal sustainability.
The Japanese yen is one of the stronger G10 currencies today. Source: xStation 5
For equities, political clarity provides a short-term positive catalyst. Investors are increasingly positioning into Japanese stocks in anticipation of higher public spending, increased defence outlays, and strategic investments (AI, digitalisation), even as the bond market remains sensitive to the risk of increased debt issuance. The main flashpoint remains the tax plan: estimates point to an annual fiscal gap of around ¥5 trillion, prompting markets to closely watch how the government plans to fund it without undermining confidence in Japan’s already very high public debt.
The main Japanese equity index, JP225 (Nikkei 225), is up just 0.25% today. However, that was enough to push the index to record highs. Source: xStation 5
The yen, meanwhile, remains the key “shock absorber”—and authorities are clearly drawing a line against disorderly currency weakness. In thin and volatile Monday trading, USDJPY briefly rose to 157.729 before quickly retreating; following a series of intensified warnings, the pair fell by around 0.4% to 156.620, stabilising near the 5-day moving average (~156.600). With a coordinated message from the Prime Minister’s Office, the Ministry of Finance, and senior FX officials stressing “urgency” and opposing one-sided moves, intervention risk has clearly increased, which should cap near-term upside in USDJPY despite the expansionary policy outlook expected after Takaichi’s victory.
Source: xStation 5
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