Japan's markets set for a revived 'Takaichi trade' after election

Prime Minister Sanae Takaichi won a decisive election mandate and markets have reacted, with domestic shares reaching record highs while Japanese government bond yields and the yen have come under pressure.

Prime Minister Sanae Takaichi secured a decisive election victory that gives her a fresh mandate to pursue reflationary policies. The result has re-focused attention on what market participants call the "Takaichi trade". That dynamic has already pushed stocks higher and put upward pressure on Japanese government bond yields and the yen. Analysts and strategists are watching whether the government will expand stimulus or strike a balance with fiscal discipline. Key developments: - Takaichi's win was described as decisive in exit polls and is presented as an electoral mandate to reflate the economy. - The "Takaichi trade" has helped domestic shares reach record highs, with the Nikkei 225 cited at an all-time high of 54,782.83. - Rates across the JGB yield curve rose sharply around Jan. 20 after the snap election call, with a record 30-year yield peak of 3.88% noted, though 30-year yields have since fallen about 31.5 basis points from that peak. - The yen has weakened since Takaichi's selection in October, falling about 6% against the dollar and briefly touching around 157.95 per dollar after the vote. - Commentators quoted in the article say the size of the victory makes a revival of the Takaichi trade likely, while other analysts note signs of resilient demand in recent debt auctions and expect a careful balance between proactive fiscal policy and fiscal discipline. Summary: Takaichi's victory has reinforced market expectations for policy-driven reflation and has kept equities, bond yields and the currency closely linked in their moves. The near-term path will depend on how the new government chooses to deploy fiscal measures and manage debt-market reactions. Undetermined at this time.