What Sanae Takaichi’s Election Means for Japan’s Economy

TradingKey - On October 4, 2025, the ruling Liberal Democratic Party (LDP) of Japan elected Sanae Takaichi as its new leader, positioning her to become the country's first female prime minister. Takaichi, known for conservative views and close association with the late former Prime Minister Shinzo Abe, marks a significant shift in Japanese political leadership.

Takaichi has long been a supporter of "Abenomics," the economic policy framework introduced by Abe, which is based on aggressive monetary easing, fiscal stimulus, and structural reforms. In the wake of her election, she has advocated for additional support measures to address the current inflationary pressures. Specifically, she has pushed for cash handouts and tax rebates aimed at assisting households struggling with rising costs. Among the LDP candidates, she was the most vocal in suggesting that issuing additional government bonds could be necessary to fund these policies.

Takaichi’s election has raised questions about Japan’s interest rate policy, particularly regarding the Bank of Japan’s future decisions. After her victory, Takaichi made it clear that her government would prioritize fiscal and monetary policies that focus on boosting demand and stimulating the overall economy. She highlighted that recent price increases were largely driven by rising raw material costs and pointed to the economic pressures companies are facing due to tariffs imposed by the United States under President Trump. She also indicated that it is premature to declare an end to Japan’s deflationary cycle.

In line with her economic philosophy, Takaichi emphasized that the goal should be to generate inflation driven by rising wages, which would increase consumer demand and, in turn, lead to moderate price increases—ultimately benefiting corporate profits. This view aligns with her broader economic vision, which seeks to balance inflation and economic growth.

For investors, Takaichi’s stance on interest rates is particularly noteworthy. Analysts suggest that her election makes it more likely that the Bank of Japan will avoid raising interest rates at its next policy meeting on October 30. This is because Takaichi is widely seen as opposing rate hikes, which could complicate the central bank’s efforts to tighten monetary policy. While a rate increase is still possible, market observers believe that the Bank of Japan may adopt a more cautious and gradual approach, with any potential rate hike likely pushed back until early next year.

On the foreign policy front, if Takaichi becomes prime minister, one of her first challenges will be managing relations with the United States. Reports suggest that President Donald Trump is planning a visit to Japan later this month as part of his Asia tour, and Takaichi will need to establish a strong working relationship with him.

Takaichi was one of the most outspoken candidates during the LDP leadership race when it came to the issue of the U.S.-Japan trade agreement, particularly regarding the potential for renegotiating some of its terms. While she has refrained from calling for an immediate renegotiation, she has made it clear that Japan will raise concerns through appropriate channels if the agreement is found to be detrimental to Japanese interests. Takaichi has stated that any such renegotiation would only occur if issues emerge during the agreement's implementation.

On Monday, financial markets reacted to expectations of a slower pace of monetary policy normalization. The yen weakened, and Japanese government bond yields rose sharply, signaling investor uncertainty about the future direction of Japan's monetary policy. However, the Nikkei stock index reached new highs, driven by the depreciation of the yen.