Takaichi's Abenomics-Inspired Policies Send Nikkei to Record Highs

Japan's Nikkei 225 index surged to a historic high of 47,187.69 on Monday, propelled by Sanae Takaichi's election as leader of the ruling Liberal Democratic Party (LDP), a move that positions her to become Japan's first female prime minister. The benchmark index gained over 4% within hours, breaking through the 47,000 threshold for the first time, while the broader Topix index rose 2.1%. The rally reflected investor optimism about Takaichi's pro-expansionary fiscal and monetary policies, including aggressive stimulus measures reminiscent of former Prime Minister Shinzo Abe's "Abenomics" agenda. Takaichi, a protege of Abe, has advocated for increased government spending and monetary easing, which analysts attribute to the market's enthusiastic response Nikkei surges to record after Takaichi elected ruling party leader^[1].

The yen weakened sharply, falling from ¥147.5 to ¥149.6 against the dollar, as traders anticipated a dovish policy environment. The two-year Japanese government bond (JGB) yield dropped 5 basis points to 0.89%, signaling expectations of delayed rate hikes by the Bank of Japan (BOJ). This shift unwound earlier market bets for immediate tightening, with the yen swaps market now pricing in a 41% chance of a December rate hike-down from 68% before Takaichi's victory Japan's Nikkei seen hitting new highs as yen, bonds sputter on …^[4]. Meanwhile, long-term JGB yields rose, with the 40-year bond surging to 3.52%, reflecting concerns about deficit spending and Japan's fiscal sustainability under a potential Takaichi administration .

Technology and export-linked sectors led the Nikkei's advance, with SoftBank Group and auto stocks benefiting from the yen's depreciation and expectations of higher corporate profits. SoftBank's shares jumped over 10%, driven by optimism about AI-driven demand and its ties to U.S. tech giants like Oracle. Automakers such as Toyota and Honda gained 4.9% and 4.7%, respectively, amid speculation that Trump-era tariff adjustments could ease costs for U.S. manufacturers Japan's Nikkei Stock Index Jumps 4.3% After Ruling Party …^[3]. The Nikkei's performance also mirrored Wall Street's record highs, as global investors anticipated further Fed rate cuts to support a slowing labor market Nikkei index ends at new record high on tech shares, …^[2].

Takaichi's victory has triggered a "Takaichi trade," characterized by long positions in equities and short bets on longer-dated JGBs. Analysts noted that her mandate-secured through strong LDP support-could pressure the BOJ to maintain accommodative policies, complicating efforts to normalize interest rates. "Takaichi's agenda will make it difficult for the BOJ to raise rates, but her spending plans could push long-term bond yields higher," said Tohru Sasaki of Fukuoka Financial Group Japan's Nikkei seen hitting new highs as yen, bonds sputter on …^[4]. The yield curve is expected to steepen as market forces balance expectations of inflationary stimulus against central bank caution .

Despite the market euphoria, challenges loom. Takaichi's LDP holds a minority in Japan's lower house, raising questions about her ability to pass ambitious fiscal measures. Analysts caution that the Nikkei may consolidate gains before year-end, with Hitoshi Asaoka of Asset Management One noting, "The market welcomes her spending policy, but political constraints could temper its impact" . Additionally, global markets remain sensitive to U.S. government shutdown risks, though Japan's rally suggests investors view Takaichi's leadership as a stabilizing force amid regional and global uncertainties .