Quick View: Will Iron Lady Takaichi be the catalyst needed to drive Japanese stocks?
Head of Japanese Equities Junichi Inoue discusses Sanae Takaichi’s unexpected rise to lead Japan’s ruling Liberal Democratic Party, and the key considerations for investors.
3 minute read
Key takeaways:
- Sanae Takaichi is the unexpected new leader of Japan’s ruling party, LDP and looks set to be appointed the country’s first female prime minister.
- Takaichi’s reflationary policies look to be pragmatic, with an emphasis on coordinated fiscal and monetary policy, and advocating for demand-pull inflation driven by wage growth.
- We believe Takaichi’s leadership has the potential to catalyse a re-rating for Japanese equities, as she could bring much-needed stability and predictability to the Japanese government and economy.
In a surprising turn of events, Sanae Takaichi was elected president of Japan’s ruling Liberal Democratic Party (LDP), positioning her to become the country’s first female prime minister. Takaichi’s victory over frontrunner Shinjiro Koizumi marks a significant shift in Japan’s political and economic landscape, with potentially significant implications for investors.
Takaichi is a staunch conservative and protégé of former Prime Minister Shinzo Abe. She is known for her hawkish stance on security and reflationary economic views. Her admiration for former UK prime minister Margaret Thatcher and her assertive communication style, have earned Takaichi comparisons to the ‘Iron Lady.’ While Koizumi is seen as a unifying figure with broad national support, Takaichi’s success stems from strong regional backing and strategic consolidation of party member votes.
Markets had priced in a 60% probability of a Koizumi win, making Takaichi’s ascent unexpected. Her previous remarks − most notably calling interest rate hikes “stupid” sparked the so-called ‘Takaichi trade’ based on expectations for pro-growth policies including more fiscal stimulus, keeping rates low and the yen weak. But post-election, we are pleased to see she has adopted a more pragmatic tone, emphasising coordinated fiscal and monetary policy, and advocating for demand-pull inflation driven by wage growth.
How have markets reacted to Takaichi’s election?
At the time of writing, initial market reactions have reflected optimism: the TOPIX surged 3%1 rallying across sectors including defence, real estate, and construction, while the yen weakened to close to ¥150 versus the US dollar. 2 The yield curve steepened3, although bond market responses remain calm. This is possibly due to expectations that LDP fiscal conservatives like Taro Aso and Shunichi Suzuki may temper Takaichi’s expansionary agenda.
The probability of an October rate hike has now dropped from 48% prior to the election result to 14%, and the likelihood of a hike by year-end has also fallen.4 While the market once discounted Takaichi’s stance, it is questionable if the Bank of Japan can maintain current real interest rates in deeply negative territory.
What are the implications for investors in Japanese stocks?
Takaichi is set to become Japan’s fifth prime minister in five years, but her leadership could bring much-needed stability and predictability, which would likely be positive for the equity market. Japanese inflation is currently among the highest in developed economies, which has supported domestic business growth through stronger nominal revenue and margin expansion. However, despite the market’s strong performance, valuations remain within historical ranges. This suggests that the positive effects of Japan’s shift toward an inflationary economy have not yet been fully priced in. We believe Takaichi’s leadership could catalyse a re-rating of Japanese equities, as she steers the economy toward mild demand-pull inflation.
1 FT Markets Data, TOPIX daily return +3.1% at 6 October 2025. Past performance does not predict future returns.
2 Bloomberg, as at time of writing on 6 October 2025.
3 Nikkei Asia; ‘Japan stocks hit record high, yen falls on pro-stimulus Takaichi’s victory’; 6 October 2025.
4 JP Morgan Global Markets Strategy, Japan Markets Research, 6 October 2025.
Compound Annual Growth Rate (CAGR): Measures an investment’s annual growth rate over time, including the effect of compounding (where any income is reinvested to generate additional returns). CAGR is typically used to measure and compare the past performance of investments or to project their expected future returns.
Demand-pull inflation: Occurs when prices increase due to increasing aggregate demand, It is usually associated with a strong economy, when competition among consumers drives prices up.
Fiscal spending/stimulus: Fiscal measures are those related to government policy regarding setting tax rates and spending levels. Fiscal austerity refers to raising taxes and/or cutting spending in an attempt to reduce government debt. Fiscal expansion (or ‘stimulus’) refers to an increase in government spending and/or a reduction in taxes.
Monetary policy: The policies of a central bank aimed at influencing the level of inflation and growth in an economy. Monetary policy tools include setting interest rates and controlling the supply of money. Monetary stimulus refers to a central bank increasing the supply of money and lowering borrowing costs.
Nominal value: A value that has not been adjusted for inflation or other factors.
Profit margin: The amount by which the sales of a product or service exceeds business and production costs.
Real interest rate: The amount charged for borrowing money, shown as a percentage of the amount owed. Base interest rates (the Bank Rate) are generally set by central banks and influence the interest rates that lenders charge to access their own lending or saving. The real interest rate is calculated by subtracting the inflation rate from the nominal interest rate (the interest rate before adjusting for inflation).
Reflation: Government policies using fiscal or monetary stimulus intended to stimulate an economy and promote inflation.
Re-rating: Occurs when investors are willing to pay a higher price for shares, usually in anticipation of higher future earnings.
Yield curve: A graph that plots the yields of similar quality bonds against their maturities, commonly used as an indicator of investors’ expectations about a country’s economic direction. A steepening yield curve indicates stronger economic activity and rising inflation expectations, and thus, higher interest rates.
These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. References made to individual securities do not constitute a recommendation to buy, sell or hold any security, investment strategy or market sector, and should not be assumed to be profitable. Janus Henderson Investors, its affiliated advisor, or its employees, may have a position in the securities mentioned.
Past performance does not predict future returns. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.
The information in this article does not qualify as an investment recommendation.
There is no guarantee that past trends will continue, or forecasts will be realised.
Marketing Communication.
3 minute read
Key takeaways:
- Sanae Takaichi is the unexpected new leader of Japan’s ruling party, LDP and looks set to be appointed the country’s first female prime minister.
- Takaichi’s reflationary policies look to be pragmatic, with an emphasis on coordinated fiscal and monetary policy, and advocating for demand-pull inflation driven by wage growth.
- We believe Takaichi’s leadership has the potential to catalyse a re-rating for Japanese equities, as she could bring much-needed stability and predictability to the Japanese government and economy.
