Japanese shares are expected to continue breaking records after Sanae Takaichi, known for her pro-stimulus stance, was elected as leader of the ruling Liberal Democratic Party (LDP), positioning her to become Japan’s next prime minister. Takaichi, 64, has long been associated with aggressive fiscal and monetary expansion, drawing comparisons to the late Shinzo Abe’s “Abenomics” policies.
In anticipation of her win, traders positioned for a so-called “Takaichi trade,” going long on equities while shorting Japanese government bonds (JGBs), particularly at the long end of the yield curve. This strategy reflected expectations of higher government spending and looser monetary conditions. The Nikkei benchmark hit a fresh record close of 45,769.50 last Friday, surpassing its previous high as markets priced in dovish leadership. Analysts suggest the index could push toward the 47,000 mark if short-sellers unwind positions.
Meanwhile, Japan’s bond market remains under pressure. Long-term JGB yields surged to record highs in September amid fading demand, reduced central bank support, and concerns about ballooning public debt. The 30-year JGB yield reached 3.285% after former Prime Minister Shigeru Ishiba announced his resignation. Although yields briefly eased when markets expected a moderate successor, Takaichi’s victory is now reigniting worries over expanded government borrowing.
The yen has been volatile, closing at 147.44 per dollar last week with its sharpest weekly gain since May. Analysts caution, however, that Takaichi’s policies may weigh on the currency over time if they delay Bank of Japan (BOJ) rate hikes. BOJ Governor Kazuo Ueda has signaled gradual tightening after years of massive stimulus, but Takaichi’s influence could complicate that path.
Market watchers expect a steeper yield curve ahead—lower short-term yields due to political pressure on the BOJ, paired with higher long-term yields from expanded fiscal spending. For now, equities remain the bright spot, with investors betting Takaichi’s leadership will inject momentum into Japan’s growth story.