Japanese Stocks Hit Record Highs — But This Time, the ‘Takaichi Trade’ Has a New Twist

TradingKey - Japan’s political landscape has shifted dramatically, as the ruling Liberal Democratic Party (LDP) forms a new coalition with opposition party Ishin — clearing the path for Sanae Takaichi to become Japan’s first female prime minister. Japanese equities continue hitting record highs on the back of fiscal stimulus and monetary easing expectations — the so-called “Takaichi trade.” But this time, the trade is evolving due to the inclusion of Ishin.

On Tuesday, October 21, the Nikkei 225 Index rose over 1.50%, extending gains from the previous day’s optimism following news of the LDP-Ishin coalition.

According to Nikkei, Japan’s 219th extraordinary Diet session opened on October 21, with Sanae Takaichi expected to be formally designated as Japan’s 104th Prime Minister during plenary sessions in both the House of Representatives and the House of Councillors later that afternoon.

Currently, the LDP and Ishin together hold 231 seats in the lower house, and with three additional lawmakers planning to support Takaichi, she is set to secure 233 votes — surpassing the majority threshold — in the first round of voting, paving the way for a smooth appointment.

Takaichi is seen as a successor to “Abenomics,” advocating for monetary easing and fiscal expansion — a policy mix that translates into yen depreciation and stock market gains. In contrast to the Bank of Japan’s current efforts toward monetary normalization or rate hikes, Takaichi has clearly opposed tightening.

Nomura Securities noted that as long as the yen remains weak, Japanese equities could continue their upward trend.

Under this policy outlook, Japanese stocks surged after Takaichi won the LDP leadership in early October, reaching new all-time highs. So far this month, the Nikkei 225 has gained over 11%.

Daiwa Securities said the market is currently driven purely by expectations. Stocks seen as beneficiaries of Takaichi’s policies — such as defense, technology, cybersecurity, and nuclear energy — are leading the broader index higher. With the LDP now allied with a party whose policy stance aligns closely with its own, Takaichi’s agenda appears more achievable.

But the Takaichi Trade Has Changed

Compared to earlier versions of the “Takaichi trade,” the new ruling coalition is introducing a shift.

Nomura Securities explained that the original Takaichi trade was based simply on expectations of reflation, a weak yen, and outperformance of export-oriented stocks. Now, market sentiment is shifting toward betting on a more stable government and structural economic reforms.

For investors, this raises a critical question: How long can current valuations and market enthusiasm last without large-scale reflationary measures?

Sumitomo Life Insurance pointed out that Nippon Ishin’s participation means Takaichi’s economic policies will be more balanced — making it difficult for her to completely disregard the logic behind BOJ rate hikes.

Marlborough Investment Management said Takaichi’s ability to push through large-scale expansionist agendas will face political and economic constraints, suggesting a second wave of the “Takaichi trade” is unlikely.

However, Bloomberg noted that while Nippon Ishin’s involvement may curb overly expansive fiscal plans, it could also open doors for strategic investments in areas like AI and innovation.