Markets Brace for Yen Weakness, Record Nikkei and Rising Yields After Takaichi’s Victory

A yen approaching 160 to the dollar, record highs in Japanese equities and upward pressure on government bond yields are potential outcomes following Prime Minister Sanae Takaichi’s decisive win in Sunday’s snap election. Takaichi led the ruling Liberal Democratic Party to a supermajority in the Lower House, securing 316 seats in the party’s largest electoral victory since World War Two, a result that grants her the ability to override Upper House vetoes and advance her legislative agenda.

Market participants expect a revival of the so‑called “Takaichi trade,” which typically features a weaker yen, stronger equities and higher long‑dated Japanese government bond yields, reflecting Takaichi’s dovish monetary stance and prospects for expanded fiscal stimulus. Early moves on Monday included the Nikkei 225 surging past 57,000 to a record high and the broader Topix reaching an all‑time peak of 3,825.67, surpassing pre‑election forecasts from Citi analysts. Frederic Neumann, Chief Asia Economist at HSBC, said the LDP’s strong showing has energized investors and reloaded the “Takaichi‑trade,” while Adrian Wong, global market strategist at J.P. Morgan Asset Management, suggested the victory could prompt proactive fiscal measures such as a two‑year consumption tax cut to spur corporate investment and reforms.

Concerns remain about the fiscal implications of heavier spending, which could push bond yields higher; the 10‑year Japanese government bond yield rose four basis points to 2.27% on Monday. Takaichi had previously announced a record ¥122 trillion budget for the fiscal year beginning April 1, marking a second consecutive year of record spending. Japan’s debt‑to‑GDP ratio stood at nearly 230% in 2025, according to International Monetary Fund data. Takaichi told NHK she is pursuing “a shift in economic and fiscal policy and a ’responsible, proactive fiscal policy,’” and indicated she would seek cooperation from opposition parties where feasible, according to a Google translation. Carlos Casanova, senior economist for Asia at UBP, expects the 10‑year yield to reach 2.5%, with most pressure concentrated at the ultra‑long end of the curve, while Sree Kochugovindan of Aberdeen Investments cautioned that the LDP’s landslide does not grant unfettered authority to increase spending and noted the party’s fiscal conservatism.

In an atypical initial market response, the yen strengthened 0.4% to trade at 156.55 against the dollar following Takaichi’s victory, a move MUFG senior currency analyst Michael Wan attributed to the prime minister’s post‑election emphasis on fiscal sustainability and comments from Finance Minister Satsuki Katayama supporting yen stability in coordination with U.S. authorities. Katayama said she would communicate with financial markets if necessary and did not rule out action against “rapid movements out of line with fundamentals,” including possible intervention in the currency market. The yen had earlier approached the 160 level this year before strengthening sharply in late January amid speculation that the New York Federal Reserve conducted “rate checks” on the currency, a signal often interpreted as potential intervention; U.S. Treasury Secretary Scott Bessent later denied U.S. intervention. Analysts view ¥160 as a critical threshold, with Citi forecasting limited weakening beyond that point given the risk of intervention, and ING noting a likely contest between market forces and authorities around the ¥159 mark.