Japanese shares are set to rise further as the yen and government bonds struggle after Sanae Takaichi was elected as the leader of the ruling party, likely making her the next prime minister. Her fiscal agenda promises to be more expansionary.
Japan Nikkei Stock Market Rally
Following Sanae Takaichi’s election as leader of Japan’s ruling Liberal Democratic Party (LDP) on October 4, 2025, the Nikkei 225 index surged to record highs. It closed above 47,000 for the first time, rising 4.75% on the next trading day, fueled by investor optimism about her pro-growth fiscal policies.[1][2]
Forecasts suggest continued gains with the Nikkei expected to reach around 51,339 by the end of October 2025, representing a projected monthly gain of 15.2%, driven by expectations of higher government spending and investment.[3]
Yen Weakness and Bond Market Pressure
The Japanese yen fell sharply after Takaichi’s victory, hitting historic lows against the euro and sliding 1.7% against the US dollar. This “Takaichi trade” reflects market concerns over increased government debt and relaxed fiscal discipline under her leadership.[4][5][1]
In the bond market, long-term Japanese Government Bond (JGB) yields rose significantly, with the 30-year yield approaching 3.29%, the highest in decades. This spike reflects investor caution amid expectations of fiscal expansion and less aggressive Bank of Japan (BOJ) rate hikes.[6][7]
Monetary Policy Outlook
Takaichi is seen as a fiscal and monetary dove, supporting a “high-pressure economy” with strong government investment to overcome Japan’s deflationary pressures. While she respects the BOJ’s independence, she emphasizes the need for BOJ policies to align with government growth objectives. However, analysts remain uncertain about the timing and scale of BOJ rate hikes, with some expecting a pause or delay in planned October increases.[8][9][10][6]
- Nikkei 225 reached record highs above 47,000 post-Takaichi win.
- Forecasted to rise further through October with strong fiscal stimulus expected.
- Yen weakened sharply, reaching historic lows versus major currencies.
- Long-term Japanese government bond yields surged, signaling market caution.
- Uncertainty remains over imminent BOJ rate hikes, with Takaichi advocating active fiscal support aligned with central bank policy.
This market reaction is rooted in a combination of Takaichi’s pro-expansion agenda and investor apprehension about growing government debt and currency depreciation risks.[2][1][6][4][8]
