"Sanae Trade" is unstoppable! The Liberal Democratic Party and the Japan Restoration Party are about to form a coalition government, and the election of Sanae Takamichi as Japan's prime minister is almost certain.

According to the leader of the Japan Innovation Party, the Liberal Democratic Party (LDP) will officially sign a coalition agreement with the party later on Monday (October 20, 2025), paving the way for Takaichi Sanae to become Japan's first female prime minister. The co-leader of the Innovation Party, Yoshimura Hiromi, stated that the two parties have reached a rough agreement and will announce the agreement at 6 p.m. on the same day. The LDP and the Innovation Party together hold 231 seats in the House of Representatives, just two seats short of a majority. However, due to divisions within the opposition camp, Takaichi Sanae is almost certain to win the prime ministerial nomination election tomorrow. At 64 years old, Takaichi is a conservative nationalist who considers former British Prime Minister Margaret Thatcher as one of her role models. She has long been an ally of Japan's longest-serving prime minister, Shinzo Abe, who was assassinated, and is a staunch follower of Abe's policies, which is why the current financial markets are starting to bet on the resurgence of "Abenomics." The recent so-called "Sanae trade" phenomenon refers to the market speculation that occurred following Takaichi Sanae's victory in the LDP leadership election, with financial markets expecting a return to "Abenomics" (aggressively pursuing a looser fiscal framework, while maintaining a cautious stance on monetary tightening). The "Sanae trade" mainly involves a rapid rise in the Japanese stock market, continued depreciation of the yen, and the resumption of "yen carry trades." Therefore, betting on the "Sanae trade" logic essentially means betting on a combination of "stronger fiscal stimulus, industrial support, and moderate monetary policy" leading to a potential resurgence in Japanese inflation - long positions on Japanese stocks, short positions on the yen, and avoiding long-term bonds. The theoretical framework of "Abenomics" is a long-term catalyst for the Japanese stock market and even global stock markets, especially for technology stocks. Therefore, if Takaichi Sanae's policy focus includes tax cuts, cash subsidies, and the ambitious goal of "comprehensive investment in Japan," along with a foreseeable path of continued aggressive fiscal expansion, it will undoubtedly drive long-term bullish trajectories for the Nikkei 225 and the TOPIX indices, particularly benefiting AI, semiconductors, energy, advanced manufacturing, and defense industries. Under the wave of the "Sanae trade," during Monday's trading session in the Japanese stock market, the benchmark Nikkei 225 index saw a gain of up to 3%, reaching a historical high. Year-to-date, the Nikkei 225 index has already accumulated a gain of about 25%. According to the latest media reports, the two houses of the Innovation Party members will meet at 2 p.m. Tokyo time, and may meet with Takaichi Sanae in the evening to finalize their cooperation before the parliamentary vote on October 21. The party leaders of the two parties had already spoken earlier in the day and agreed on the basic framework. In recent days, the LDP has been intensively negotiating with the Innovation Party, which hails from Osaka. As the third largest party in the House of Representatives, the Innovation Party has demanded that the LDP agree to three core conditions: temporary reduction of the food consumption tax, tighter political funding regulation, and reduction of the number of parliamentarians. Additionally, the Innovation Party advocates for reforming the social welfare system to alleviate the burden on the labor force. Yoshimura emphasized that reducing the number of parliamentarians is an "absolute prerequisite," and added that the LDP has no intention of immediately banning corporate donations to political parties. After the new alliance is formed, the LDP will have a partner who is more aligned with them on multiple policies compared to their former ally, the Komeito Party (a centrist party). Earlier this month, the Komeito Party unexpectedly withdrew from the ruling coalition citing policy differences. Subsequently, Takaichi Sanae actively sought alternative support; coupled with the LDP's consecutive defeats in last year's House of Representatives election and this year's House of Councillors election, external support became more urgent. On social issues, Takaichi Sanae is a staunch conservative, for example, she opposes women inheriting the imperial throne; her economic policies closely resemble those of former Prime Minister Shinzo Abe's "Abenomics." She has long advocated for government expenditure to drive economic growth and has criticized the Bank of Japan's tightening monetary policy. However, during her campaign for the LDP presidency, she took a more moderate stance at one point, stating that "she does not deny the necessity of fiscal consolidation" and that the "details of monetary policy should be left to the central bank to decide." However, since her victory, the market expects large-scale fiscal stimulus and pressure on the central bank, leading to a depreciation of the yen and a rise in the stock market. The decline of the yen could exacerbate inflation - a key issue for voters; if she continues along the path of Abenomics, she will face a dilemma. On security, foreign affairs, and energy issues, both parties have highly consistent positions: they both support the Japan-US security alliance, advocate for strengthening military and economic security (including building a supply chain less susceptible to geopolitical shocks), and also support restarting and expanding nuclear energy following the 2011 Fukushima Daiichi nuclear power plant accident.