What experts predict after Sanae Takaichi’s landslide

The yen, nearing 160 yen to the dollar, record Japanese stocks and rising Japanese government bond yields could be on the table after Prime Minister Sanae Takaichi won a landslide victory in Sunday’s snap general election.

Takaichi led the ruling Liberal Democratic Party to a supermajority in the House of Representatives, securing 316 seats in the party’s biggest electoral victory since World War II.

This would give her the power to override the House of Councilors’ legislative vetoes, strengthening her ability to push her agenda through Japan’s parliament.

Analysts expect his victory to lead to a return to so-called “high market trade,” which typically involves a weaker yen, higher stock prices and higher long-term government bond yields. This trend reflects Mr. Takaichi’s dovish stance on monetary policy and his expectations for increased fiscal spending.

Early signs of these emerged on Monday. benchmark Nikkei Stock Average rose to an all-time high of more than 57,000 points, while the broader TOPIX rose to an all-time high of 3,825.67, beating Citi analysts’ pre-election expectations.

“The Liberal Democratic Party’s strong victory is warming investors’ hearts,” said Frederick Newman, chief Asia economist at HSBC. “The stock market, in particular, has resumed ‘high market trading’ and is celebrating the surprising election results.”

“We hope that a strong majority will give the Liberal Democratic Party more freedom to pursue pro-growth policies,” Newman added.

Adrian Wong, global market strategist at JPMorgan Asset Management, agreed, saying the victory would lead to aggressive fiscal policy such as a two-year sales tax cut, increased business investment and aggressive corporate reforms.

But while most analysts agree with the push for stocks, others warn that higher spending could weigh on bonds and push bond yields higher. The 10-year Japanese government bond yield rose 4 basis points to 2.27% on Monday.

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

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

After the general election, Takaichi told national broadcaster NHK that he was pursuing a shift in economic and fiscal policy and a ‘responsible and proactive fiscal policy.’

“We will proceed where we can and seek cooperation from opposition parties in areas where we can gain their support,” he added, according to Google Translate.

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

Others were more cautious. Sree Kochugovindan of Aberdeen Investments said the Liberal Democratic Party’s landslide did not give Takaichi the right to “just spend whatever he wanted.”

“The Liberal Democratic Party is fiscally conservative and Mr. Takaichi has been very considerate of bond investors,” the senior research economist said.

He said Japan’s debt-to-GDP ratio has been declining since the pandemic and that Takaichi’s latest fiscal and economic policies will maintain this downward trend.

Mr. Takaichi said that the amount of new government bond issuance is expected to be 29.6 trillion yen, marking the second consecutive year that the issuance amount has fallen below 30 trillion yen.

However, after Takaichi won the election, the yen rose by 0.4% to 156.55 yen against the dollar, in an unusual move.

Michael Wang, senior currency analyst at MUFG, wrote in a note on Monday that the move likely reflects Takaichi’s continued commitment to fiscal sustainability in his post-election comments, as well as comments from Finance Minister Satsuki Katayama, who supports yen stability in conjunction with U.S. authorities.

Following Takaichi’s victory, Katayama reportedly said he would communicate with financial markets as necessary on Monday.

The yen had approached the 160 yen mark against the dollar earlier this year, but soared in late January on speculation that the New York Fed had implemented an “interest rate check” on the yen, seen as a sign of possible intervention. US Treasury Secretary Scott Bessent later denied US involvement.

Katayama said early Monday that he did not rule out taking measures against “rapid movements that go against fundamentals,” and said such measures could include intervening in foreign exchange markets.

For analysts, 160 yen to the dollar seems to be the thin line, and Citi analysts say it is unlikely that the yen will depreciate much beyond that level, given the possibility of currency intervention by Japanese and U.S. authorities.

Dutch bank ING said in a report dated February 9, “The yen is likely to approach the 160 yen level again, but there is a strong possibility that it will struggle between the market and the authorities around 159 yen.”