Nikkei Index Heading Toward 60,000? Why Is Global Capital Betting on Sanae Takaichi? Will Japan’s Stock Market Continue to Hit New Highs in 2026?

TradingKey - February 2026, the Tokyo stock market has once again become the eye of the storm in global financial markets. Following Sanae Takaichi’s Liberal Democratic Party (LDP) securing a landslide victory in the House of Representatives election, the Nikkei 225 index has hit consecutive record highs in just a few days, targeting the 60,000-point milestone.

Will the Nikkei index sustain its rally in 2026? Why is global capital betting so aggressively on Sanae Takaichi following her landslide victory? What opportunities and risks are hidden behind the surge in the Japanese stock market?

What is driving the accelerated rise in the Japanese stock market?

The recent sharp rise in the Japanese stock market is not a random short-term movement, but rather the result of a confluence of multiple positive factors: political clarity, expectations of expansionary fiscal policy, increased prosperity in relevant global industries, and improved corporate fundamentals. It is a "consensus rally" driven by both policy and fundamentals.

On February 8, 2026, Japan held its House of Representatives election, where the Liberal Democratic Party (LDP), led by Sanae Takaichi, and its ruling coalition secured a landslide victory. The LDP alone won 316 seats, setting a record for the party since its founding in 1955.

The market generally believes that a stable political situation will clear the way for the smooth implementation of economic policies, significantly boosting investor confidence and serving as the direct trigger for the stock market surge.

Sanae Takaichi’s economic policies, dubbed "Sanaenomics," inherit and evolve from "Abenomics," with the core objective of boosting economic recovery through expansionary fiscal spending and loose monetary policy.

Reportedly, the Takaichi cabinet plans to invest 6.4 trillion yen to support strategic industries such as semiconductors, artificial intelligence (AI), and defense, while also pushing for a two-year suspension of the food consumption tax; meanwhile, the Japanese government has launched an economic stimulus package totaling over 21 trillion yen designed to boost consumption and support industrial upgrading. It is reported that the Takaichi cabinet plans to invest 6.4 trillion yen to support strategic industries such as semiconductors, artificial intelligence (AI), and defense, while pushing for a two-year suspension of the food consumption tax; concurrently, the Japanese government has introduced an economic stimulus package exceeding 21 trillion yen to revitalize consumption and support industrial upgrading.

Regarding monetary policy, although the Bank of Japan (BoJ) has modestly raised interest rates to 0.75%, it remains among the most accommodative globally and continues to provide "floor" liquidity support to the market by purchasing ETFs (with holdings of approximately 83 trillion yen).

Why is Sanae Takaichi’s election victory favorable for the Japanese stock market?

The reason global capital is betting heavily on Sanae Takaichi is fundamentally that her election victory has strengthened market expectations for "policy-driven economic recovery," and her policy positions align closely with stock market interests.

As a Shinzo Abe loyalist, Takaichi adheres to the core logic of "Abenomics," focusing on stimulating economic growth and corporate earnings through "loose fiscal + loose monetary" policies.

During the election campaign, Sanae Takaichi repeatedly emphasized the need to advance corporate governance reforms, encouraging companies to increase dividends and stock buybacks to improve Return on Equity (ROE). The market expects that Takaichi’s stable government will further advance these reforms, helping to enhance the valuation levels of the Japanese stock market and attract more long-term capital inflows.

Is international capital accelerating its flow into Japan?

Against the backdrop of Takaichi’s election victory and the sustained rally in the stock market, international capital has shown a clear trend of accelerating into the Japanese stock market, with data and analyst forecasts suggesting that foreign inflows could see "explosive growth" in the coming months.

As early as 2025, net foreign purchases of Japanese stocks reached their highest level since 2013, a trend that has continued into early 2026.

Following Takaichi’s landslide victory on February 8, foreign enthusiasm for Japanese stocks intensified. On February 9, net foreign inflows to the Tokyo Stock Exchange exceeded 1 trillion yen in a single day, setting a new daily high for the past six months.

Tomokazu Kitaoka, Chief Equity Strategist at Nomura Securities, stated that if the market expects the Takaichi government to implement a growth strategy under the premise of moderate fiscal expansion, net foreign inflows could reach as high as 10 trillion yen (approximately $64.1 billion) over the next three months. This volume is five times the average monthly foreign inflow in 2025 and could even surpass the levels seen during the Abe era.

It is worth noting that foreign capital has become the dominant force in the Japanese stock market. London Stock Exchange Group (LSEG) data shows that foreign capital accounts for 65% of the trading volume on the Tokyo Stock Exchange. This means that the short-term performance of the Japanese stock market will be highly sensitive to foreign capital flows; should foreign inflows stop or turn into outflows, a short-term market correction could be triggered.

What impact does yen depreciation have on the Japanese stock market?

While the Japanese stock market is surging, the yen continues to depreciate. Yen depreciation is a "double-edged sword"—it can boost the profits of export-oriented companies, but it also brings risks such as rising import costs and asset impairments.

Yen depreciation significantly boosts the profits of export-oriented companies. Japan is an export-oriented economy, and many listed companies such as Toyota, Honda, and Tokyo Electron have a very high proportion of overseas revenue. For every 1% depreciation of the yen against the dollar, the average profit of TOPIX component companies increases by 0.7%.

Furthermore, a weaker yen enhances the price competitiveness of Japanese products in global markets, helping companies expand their overseas market share and further improve profitability.

However, excessive yen depreciation brings multiple risks, primarily driving up import costs and squeezing the profits of domestic demand-oriented companies. Japan is highly dependent on imports of energy and raw materials; the continuous depreciation of the yen has significantly increased import costs for businesses, especially non-export-oriented small and medium-sized enterprises (SMEs), whose profit margins may be severely squeezed, potentially impacting overall market profitability.

Forecast for the Japanese stock market in 2026? Will it continue to reach new highs?

Based on the current market environment, policy expectations, and capital trends, the Japanese stock market is expected to maintain its upward momentum in 2026, with the possibility of challenging the 60,000-point mark. However, investors should remain alert to hidden risks; short-term corrections could occur at any time, and the overall pattern will likely be one of "volatile upward movement."

J.P. Morgan expressed a bullish outlook on the Japanese stock market for 2026, stating that as long as the USD/JPY exchange rate does not break above 165 and the 10-year Japanese government bond yield stays below 3%, the upward trend in the stock market is unlikely to change. The bank predicts that in a base-case scenario, the Nikkei index will reach 57,000 points by year-end, potentially exceeding 60,000 points in a bullish scenario. Meanwhile, it warned that excessive yen depreciation and rapidly rising interest rates are two key risks to watch; if these "critical points" are breached, the stock market could face a correction of approximately 10%.

Goldman Sachs pointed out that improvements in corporate fundamentals are the core support for the sustained rise of the Japanese stock market; with 51% of companies beating earnings expectations, the profitability of Japanese firms will continue to rise in 2026. The firm predicts the Nikkei index will reach 58,500 points by year-end and advises investors to focus on companies with high proportions of overseas revenue and strong dividend capacities. It also cautioned that high valuations and fiscal policy uncertainty could trigger short-term market volatility.