What experts expect after Sanae Takaichi’s landslide

A yen nearing 160 to the dollar, record Japanese equities and higher Japanese government bond yields could be on the table after Prime Minister Sanae Takaichi romped to a landslide victory in the country’s snap election Sunday.

Takaichi led the ruling Liberal Democratic Party to a supermajority in the Lower House, securing 316 seats in the party’s largest election victory since World War Two.

The result gives her the power to override any legislative veto from the Upper House, strengthening her ability to push her agenda through Japan’s legislature.

Analysts said that her victory will lead to a revival of the so-called “Takaichi trade,” which typically involves a weaker yen, rising equities, and higher long-dated Japanese government bond yields. The trend reflects Takaichi’s dovish stance on monetary policy and expectations of expanded fiscal stimulus.

Some early signs of these emerged Monday. The benchmark Nikkei 225 soared past the 57,000 mark to a record high, while the broader Topix rose to an all-time peak of 3,825.67, exceeding Citi analysts’ pre-election expectations.

“The strong LDP win is warming the hearts of investors,” said Frederic Neumann, Chief Asia Economist at HSBC. “Equities, in particular, are celebrating the surprising election result, re-loading the ‘Takaichi-trade.'”

“The hope is that the strong majority will give the LDP more leeway in pursuing growth-friendly policies,” Neumann added.

This is echoed by Adrian Wong, global market strategist at J.P. Morgan Asset Management, who said the victory would lead to proactive fiscal measures, such as the two-year consumption tax cut, to increased corporate investment and aggressive corporate reforms.

However, while most analysts agree on the boost to equities, some warned that heavier spending could pressure bonds and raise bond yields. The yield on the 10-year Japanese government bond rose 4 basis points to 2.27% on Monday.

Before the election, Takaichi had announced a record 122 trillion yen budget for the financial year starting April 1, marking a second straight year of record spending.

Japan is the most indebted nation in the world, with a debt-to-GDP ratio of almost 230% in 2025, according to data from the International Monetary Fund.

Takaichi told national broadcaster NHK after the election that she was pursuing “a shift in economic and fiscal policy and a ‘responsible, proactive fiscal policy.”

“We will move forward with areas where we can, and will call for cooperation from the opposition parties in areas where we can gain their support,” she added, according to a Google translation.

Carlos Casanova, senior economist for Asia at Swiss private bank UBP, expects the 10-year yield to reach 2.5%, with most of the pressure concentrated at the ultra-long end of the yield curve.

Others were more cautious. Sree Kochugovindan of Aberdeen Investments said the LDP landslide does not entitle Takaichi “free rein to just spend.”

“The LDP is fiscally conservative, and Takaichi has been very mindful of bond investors,” the senior research economist noted.

Japan’s debt-to-GDP ratio has declined since the pandemic, he said, and Takaichi’s latest fiscal and economic package will keep it on that downward trend.

Takaichi said the amount of newly issued government bonds is expected to be 29.6 trillion yen, marking the second consecutive year that issuance remains below 30 trillion yen.

However, in an uncharacteristic move, the yen strengthened 0.4% to trade at 156.55 against the dollar after Takaichi’s electoral victory.

Michael Wan, senior currency analyst at MUFG, wrote in a note Monday that the move likely reflected continued commitment by Takaichi on fiscal sustainability in her post-election comments, as well as comments from Finance Minister Satsuki Katayama supporting yen stability, in coordination with U.S. authorities.

Katayama reportedly said that she would communicate with financial markets on Monday if needed, following Takaichi’s win.

The yen had approached the 160 mark against the dollar earlier this year, before strengthening sharply in late January amid speculation that the New York Federal Reserve conducted “rate checks” on the yen, often seen as a signal of possible intervention. U.S. Treasury Secretary Scott Bessent later denied that the U.S. had intervened.

Katayama early Monday did not rule out taking action against “rapid movements out of line with fundamentals,” saying that measures included intervention in the currency market.

For analysts, 160 yen to the greenback seems to be the line in the sand, with Citi analysts saying the yen is unlikely to weaken far beyond that level, given awareness of potential forex intervention by Japanese or U.S. authorities.

“The yen will approach the 160 level once more, but there will likely be a struggle between the market and the authorities near the 159 mark,” Dutch bank ING said in a Feb. 9 note.