Japan just had a political earthquake — and the markets absolutely loved it.
Prime Minister Sanae Takaichi’s Liberal Democratic Party (LDP) didn’t just win Sunday’s election. They smashed it, securing 316 out of 465 seats and landing a two-thirds super majority. The result? Japanese stocks rocketed to record highs, and the ripple effect sent markets across Asia soaring on Monday.
The Nikkei 225 jumped over 5% in early trading, smashing through the 57,000 yen mark for the first time ever. By close, it settled at a still-impressive 3.89% gain, finishing at 56,363.94 yen (£264.91). Year-to-date, the index is now up 8.7%. Not bad for a Monday.
Why Markets Are Celebrating Takaichi’s Victory
Takaichi’s landslide win means she can push through her pro-business agenda without endless negotiations with opposition parties. That’s music to investors’ ears.
She’s pledged a “responsible yet aggressive” fiscal policy and confirmed she won’t reshuffle her Cabinet. Translation? Stability meets growth-focused spending.
Hisashi Arakawa, head of Japan equities at Aberdeen Investments, reckons the win gives Takaichi “political room to advance her pro-growth agenda.” That includes expansionary fiscal spending and strategic investments in semiconductors, AI, energy security, defence, and shipbuilding.
There’s even chatter about suspending the 8% consumption tax, which could boost domestic spending and give households more breathing room.
Asian Markets Ride the Wave
Japan wasn’t the only market partying on Monday. The election results sparked a rally across Asia.
South Korea’s Kospi surged 4.1% to 5,298 KRW (£2.67), continuing its monster run — the index is up 110.1% over the past year. China’s Shanghai index climbed 1.4% to 4,123 yuan (£437.16), whilst Hong Kong’s index gained 1.7% to 27,027.16. Taiwan’s Taiex also jumped 1.9% to 32,404.62 new Taiwan dollars (£755.74).
The broader takeaway? Investors across the region are betting that a stable, pro-growth Japan is good for everyone.
Japan’s Economy Needs This
Let’s be honest — Japan’s economy has been struggling. An ageing population has shrunk the workforce and sent social care costs skyrocketing. Growth has been muted, and the country needs a shot in the arm.
Takaichi’s policies could provide exactly that. Beyond fiscal stimulus, there’s talk of corporate governance reforms. The Financial Services Agency is reportedly looking to amend the corporate governance code this year, encouraging companies to actually use their cash piles by investing in their businesses.
Arakawa noted that whilst short-term risks like rising Japanese government bond yields and geopolitical tensions with China could create headwinds, “the broader macroeconomic environment continues to work in Japan’s favour.”
The Yen Strengthens — But Watch This Space
The yen also got a boost following the LDP’s victory, strengthening against the dollar and pulling back from levels that previously hinted at central bank intervention.
But don’t get too comfortable. Analysts warn that traders will be watching the currency closely, especially after it hit its weakest point since 2024 earlier this year at 159.45 per dollar.
Kathleen Brooks, research director at XTB, pointed out the irony: “Now that Takaichi is politically untouchable, we may see the yen fall once again.” However, the yen was the second strongest currency in the G10 FX space on Monday, suggesting the market had already priced in the election result.
The real question? Which specific policies Takaichi will prioritise — and how currency markets will react once we know more.
What This Means for Investors
Takaichi’s historic win has given Japanese markets a clear boost, and the optimism is spreading across Asia. Pro-growth policies, fiscal stimulus, and corporate governance reforms could provide the jolt Japan’s economy desperately needs.
But keep an eye on bond yields, the yen’s trajectory, and geopolitical tensions. Short-term volatility is always possible, especially as traders digest the policy details.
For now, though, Asian markets are riding high — and betting big on Takaichi’s vision for Japan.
FAQ
Q1: What did Sanae Takaichi’s party win in the Japanese election?
A: The Liberal Democratic Party (LDP) secured 316 out of 465 seats in Sunday’s election, achieving a two-thirds super majority. This gives Takaichi significant political capital to advance her pro-business agenda without extensive opposition negotiations.
Q2: How did Japanese stocks react to the election results?
A: The Nikkei 225 surged over 5% in early trading on Monday, crossing 57,000 yen for the first time. It closed up 3.89% at 56,363.94 yen (£264.91), marking a strong start to the week and bringing year-to-date gains to 8.7%.
Q3: Why are markets so optimistic about Takaichi’s policies?
A: Takaichi has pledged expansionary fiscal spending, strategic investments in semiconductors and AI, and potential suspension of the 8% consumption tax. These pro-growth measures could boost domestic consumption and business investment, addressing Japan’s economic challenges from an ageing population.
Q4: Which other Asian markets rallied on Monday?
A: South Korea’s Kospi jumped 4.1%, China’s Shanghai index rose 1.4%, Hong Kong’s index climbed 1.7%, and Taiwan’s Taiex gained 1.9%. The positive sentiment from Japan’s election results spread across the region.
Q5: What are the risks to Japan’s market rally?
A: Potential headwinds include rising Japanese government bond yields, geopolitical tensions with China, and yen volatility. Whilst the yen strengthened initially, analysts warn it could weaken again as Takaichi’s policies become clearer, especially given her political strength after the landslide victory.
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Effective Date: 15th July 2025
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