With the Liberal Democratic Party's landslide victory in Japan's general election giving Prime Minister Sanae Takaichi, who has pushed fiscal expansion, a firm grip on policy leadership, markets are voicing concern that the so-called "Takaichi trade"—stocks up, Government Bonds prices and the yen down—could regain momentum.
According to NHK on the 9th, the Liberal Democratic Party led by Prime Minister Takaichi secured the largest number of seats ever in the lower house election held the previous day. In this election, the LDP won 316 of the 465 seats, surpassing 310, the threshold to propose constitutional amendments and equivalent to two-thirds of the total. This is the first time in Japan's postwar political history that a single party has on its own crossed the amendment line.
With a landslide win, Prime Minister Takaichi's LDP has gained the political power to pass laws and policies on its own—excluding constitutional revision—without opposition checks. Accordingly, the Takaichi Cabinet is expected to move in earnest on economic policies emphasizing expansionary fiscal measures and growth-first priorities. The Takaichi Cabinet has already drawn up a record-high 122.3092 trillion yen (about 1,144 trillion won) budget for fiscal 2026 (April 2026–March 2027), calling it a "budget to make Japan strong and prosperous."
This policy stance is likely to be positive for the stock market. Expectations are that aggressive stimulus will draw funds into equities. Kota Suzuki, a strategist at Nomura Asset Management, told Reuters, "As the administration's foundation becomes much more stable, it will be easier for expectations to form for advancing economic policy," adding, "Since there will be no need to actively seek opposition cooperation, pressure for giveaway-style fiscal expansion will also ease."
Even before the election, as polls indicated the LDP was likely to win, share prices had been rising. On the 6th, the last trading day before the vote, the Nikkei closed at 54,253, up about 19% from Oct. 3, 2025, before Prime Minister Takaichi was elected LDP president. On the first trading day after the election, the Nikkei 225 average again set a record high, topping 57,000 yen intraday. Defense, artificial intelligence, and semiconductors, which Prime Minister Takaichi has identified as strategic investment targets, are seen as prime beneficiaries.
By contrast, long-term Government Bonds prices are likely to fall. To expand fiscal expenditure, large-scale Government Bonds issuance is inevitable, which would increase bond supply and could lead to lower Government Bonds prices and higher yields. Japan's government debt stands at 236% of gross domestic product (GDP), the highest among advanced economies, posing a structural burden on the Government Bonds market.
Amid rising concern over fiscal deterioration, Japanese Government Bonds yields are swinging. When Prime Minister Takaichi pledged to cut the current 8% food consumption tax rate to 0% for two years despite growing fiscal burdens, Japan's bond market reacted immediately. On the 20th of last month, the 10-year Government Bonds yield briefly climbed to 2.380% per year, a 27-year record high. The New York Times (NYT) said, "Prime Minister Takaichi has presented an aggressive government expenditure program to spur economic growth, but it has also heightened concerns about Japan's massive liability levels."
The yen is also likely to continue weakening. During a campaign stop on the 31st of last month, Prime Minister Takaichi said, "A weak yen is not unconditionally bad. It presents a big opportunity for export industries," signaling tolerance for yen weakness. In fact, since Takaichi took office last October, the yen has generally trended weaker. Although it briefly strengthened last month when the possibility of a "rate check" with the United States was mentioned, it has since turned weaker again.
Naoya Hasegawa, chief bond strategist at Okasan Securities, said, "Given Takaichi's big win, the 'Takaichi trade' will revive, which means upward pressure on Japanese Government Bonds yields," adding, "Moves in the yen, stocks, and bond yields influence one another. When the yen plunges, yields tend to rise."