Nikkei Boost

Coalition Deal Paves Way for New PM

It’s been a rollercoaster couple of weeks for Japanese markets and politics.  

• First, the ruling party LDP selected its first-ever female leader, Sanae Takaichi — who’s strong support for fiscal stimulus and loose monetary policy sent the stocks surging and yen sliding.
• Then, Japan’s ruling coalition collapsed, leaving her bid for prime minister in jeopardy and markets reeling.
• Now, LDP has found a new coalition partner, likely securing the support Takaichi needs to be confirmed as the PM later this week.

Why it matters: This isn’t just a gender milestone: it’s a pivot in Japan’s political axis. Tokyo Stock Exchange is back, buzzing over “Takaichi trade”, with Nikkei 225, Japan's main stock index, jumping 3.4% on the news to a new record and approaching the 50,000-point milestone.

Market Takeaway

If Takaichi takes office, Japan’s fiscal priorities could shift. Takaichi’s platform includes tax cuts and higher spending, and she has openly said to push the Bank of Japan towards looser monetary policy too.

More stimulus could mean: 

• Weaker yen
• Higher inflation risk
• Boost for stocks
• Higher long-term bond yields

But she has an uphill battle, as the new coalition could be fragile, and even if it holds, it's just shy of a majority. The incoming prime minister will need to navigate coalition dynamics skillfully and rally support to push her policies forward.

Lessons for Investors

The past two weeks showed how fast political shifts can ripple through markets, especially when fiscal stimulus and monetary policy are in play.

Japan’s new coalition deal revives Takaichi’s bid for prime minister, but governing won’t be easy. That means continued uncertainty around:

• Japan’s next budget
• Interest rates
• Economic reforms

For investors, the message is simple: in Japan, policy direction is driving market reaction.