Tokyo, 20 October 2025 — The path is clearing for Sanae Takaichi, the newly-elected leader of the ruling Liberal Democratic Party (LDP), to become Japan’s first female prime minister, a development that has energized both markets and regional observers.
Her candidacy picked up momentum after the LDP negotiated a potential coalition with the right-wing Japan Innovation Party (Ishin), which would give them enough seats in the Lower House to secure a majority.
Economic & Market Dynamics
Markets responded swiftly. Japan’s benchmark equity index, the Nikkei 225, climbed as investors priced in the so-called “Takaichi trade”, a mix of fiscal stimulus, structural reform and a weaker yen.
Strategists believe her platform, which promotes fiscal expansion and pro-growth policies, aligns with investor optimism in Japan’s structural recovery. “Expectations for Takaichi’s economic policies, which include fiscal expansion and monetary easing, appear to be facilitating rising share prices and a weaker yen,” said a Nomura strategist.
Key Policy Themes
- Fiscal policy & monetary stance: Takaichi advocates using government resources to counter inflationary pressures while supporting growth, signalling a continuation (and possibly intensification) of policy stimuli.
- Security & constitutional revision: On the defence front, she supports revising Japan’s pacifist Article 9, increasing defence spending and adopting a stronger posture in regional geopolitics.
- Coalition fragility: Although the coalition deal with Ishin brings a parliamentary majority, differences remain, particularly over spending and deregulation priorities, raising questions about how smoothly her government will be able to implement its agenda.
Regional Implications for Asia-Pacific
For ASEAN and wider Asian markets, Takaichi’s likely ascension carries multiple implications:
- Investment flows: A more stimulus-friendly Japan could attract capital inflows into Japanese equities and potentially shift regional interest away from some Southeast Asian markets temporarily.
- Competitive pressure: Supply-chain, defence and semiconductor policies in Japan can impact neighbouring countries, especially those tied into regional manufacturing networks or chip value chains.
- Currency & carry trade: The yen’s depreciation in response to stimulus expectations could fuel carry trades, affecting regional currency dynamics and cross-border capital flows.
What to Watch
- Formal confirmation of Takaichi as prime minister in the Diet, and the coalition’s final policy platform.
- Details of her fiscal stimulus and how it will be funded, whether via additional borrowing or re-prioritisation of existing spending.
- Response of the Bank of Japan, whether it shifts policy in light of stronger fiscal intent and market movements.
- Regional reaction: Will Asian central banks or markets adjust to a more aggressive Japan policy regime?
