Following the recent victory of Sanae Takaichi as the new leader of the Liberal Democratic Party in Japan, the market swiftly reacted with asset prices surging. On Monday (October 6), the Nikkei Stock Average index soared by over 4% at the opening, reaching a historic high. Simultaneously, the Japanese yen weakened against the US dollar to around 149.7 yen per dollar, approaching the 150 whole number mark.
Sanae Takaichi is seen as a prominent figure representing the hardline conservative faction in the Japanese political arena. It is widely anticipated in the market that under her leadership, there will be a continuation of expansionary policies with a touch of “high-pressure economy”, aiming to stimulate investments and consumption, further boosting domestic demand and exports.
Takaichi believes that the current inflation in Japan is mainly of the “cost-push” type rather than “demand-pull” inflation, hence she deems it inappropriate to curb prices by raising interest rates.
In a press conference following her victory on October 4, Takaichi emphasized, “Monetary policy is also the responsibility of the government, while the specific measures are to be chosen by the Bank of Japan (BOJ).” This stance is seen as her intent to strengthen the government’s leading role in determining the direction of monetary policy.
According to a report by Crédit Agricole CIB, if the Takaichi government promotes a “high-pressure economy” policy, it is expected to expand domestic demand and investments through public-private partnerships (PPP). The bank also predicts that the Bank of Japan may raise interest rates slightly by 25 basis points early in 2026, but the overall environment is likely to remain at low-interest rates to support economic growth.
On Monday (October 6) morning in Japan, the Nikkei Stock Average surged by 1949 points to 47,719 points at one point, marking a substantial 4.26% increase and achieving a historic high.
The Tokyo Stock Price Index (Topix) also rose in tandem, exceeding 3%, both setting new records.
At the Chicago Mercantile Exchange (CME), Nikkei futures rose by over 4% in the night session, reflecting investors’ optimism towards the new government’s expansionary policies.
In the foreign exchange market, the US dollar fluctuated around 149.70 yen, rising from 149.05 to 149.86 during trading. Regarding the Euro exchange rate, the yen briefly reached 175.50 yen to 1 Euro, nearing the historic low of 175.70 yen set at the end of 2024.
The trend in Asia-Pacific stock markets varied: Australia’s S&P/ASX 200 index slightly rose by 0.19%, South Korea’s KOSPI surged by 2.7%, Hong Kong’s Hang Seng Index futures edged up slightly, while China and some Asian markets were closed for holidays.
In the US stock market, despite the ongoing government shutdown, the performance was overall stable last week. The S&P 500 index closed up 0.01%, the Nasdaq fell slightly by 0.28%, and the Dow Jones Industrial Average rose by 0.51%. Bitcoin set a new high over the weekend, continuing its strong performance in October dubbed “Uptober”.
Sanae Takaichi’s victory on October 4 over the incumbent Minister of Agriculture, Forestry, and Fisheries, Jiro Koizumi, made her the first female leader of the Liberal Democratic Party, expected to officially become Japan’s first female Prime Minister after the parliamentary vote on October 15.
Takaichi is known for her conservative and assertive stance. It is widely anticipated in the market that she will continue the “Abenomics” path of the late former Prime Minister Shinzo Abe, using the framework of ultra-loose monetary policies, flexible fiscal policies, and structural reforms – the “three arrows” – to drive expansionary policies, potentially initiating a new round of fiscal expansion in Japan.