Market Roars: Ultra-Conservative Takaichi Win Propels Nikkei to Record Highs, Yen Slumps on Stimulus Hopes

The appointment of Sanae Takaichi as the new leader of Japan’s Liberal Democratic Party (LDP) triggered a sharp rise in domestic equity markets on Monday. Takaichi, long regarded as a fiscal dove and a close political ally of the late Prime Minister Shinzo Abe, is widely expected to continue expansionary fiscal and monetary policies. With the LDP controlling the lower house, her victory positions her to become Japan’s first female prime minister, a prospect that buoyed investor sentiment.

The Nikkei 225 Index jumped more than 4%, climbing past both the 46,000 and 47,000 thresholds for the first time and peaking near 47,789 points. The TOPIX benchmark also advanced nearly 3% to around 3,220, reflecting broad optimism across the market. Analysts noted that traders are increasingly confident the index could test the 48,000 level in the near term. Stocks tied to defense and manufacturing led the rally: Mitsubishi Heavy Industries surged roughly 13% on expectations of higher defense spending, while Toyota Motor Corp. and Honda Motor Co. gained about 4.9% and 4.7%, respectively, after reports suggested potential reductions in U.S. tariffs on Japanese automobiles.

Currency and bond markets displayed more mixed reactions. Anticipation of greater fiscal outlays under Takaichi’s leadership led the yen to weaken by over 1% against both the U.S. dollar and the euro, with the dollar trading at about 149.77 yen. Long-term Japanese government bonds sold off, pushing the yield on the 40-year JGB up 14 basis points to 3.52%, while the two-year yield edged down to 0.9%, indicating a softer outlook for near-term Bank of Japan rate hikes. Financial shares lagged behind, and the Topix Banks Index slipped roughly 2%, reflecting concerns that delayed rate increases could limit profit margins. According to yen swap pricing, the probability of a rate hike by December fell from 68% to 41% within a single trading day.

In her victory address, Takaichi emphasized the need for coordination between fiscal and monetary authorities to achieve sustainable, demand-driven inflation supported by wage growth and corporate profitability. Market participants have already coined the term “Takaichi trade” to describe strategies that go long on equities while shorting long-term Japanese bonds—a pattern that gained momentum following her election.

Despite the upbeat market reaction, Takaichi faces significant structural challenges. Analysts from BMI (Fitch Solutions) highlighted priorities such as enhancing Japan’s competitiveness, fortifying its technological and industrial capacity, and addressing demographic pressures tied to an aging and shrinking population—all within the constraints of a substantial public-debt burden.

Elsewhere in Asia, most stock indices finished higher. Hong Kong’s Hang Seng dipped slightly by 0.1% to 27,119, while U.S. markets ended their previous session mixed: the S&P 500 added 0.44%, the Dow Jones Industrial Average rose 238 points, and the Nasdaq Composite eased 63 points. Oil prices firmed after OPEC+ announced a modest production increase of 137,000 barrels per day for November, citing confidence in global economic conditions. West Texas Intermediate (WTI) crude advanced $0.88 to $61.76 per barrel, and Brent rose $0.92 to $65.45.