Japan’s ‘Thatcher’ pushes stocks to new heights following announcement of early election

Sanae Takaichi’s Election Gamble Sends Japanese Markets Soaring

Sanae Takaichi, who has often cited Margaret Thatcher as her inspiration, is at the center of a dramatic surge in Japan’s stock market as she prepares for a possible snap election in early February.

Investors are enthusiastically embracing what’s being dubbed the “Takaichi trade,” anticipating that a win at the polls will give her the mandate to stimulate the economy through increased government spending or tax reductions.

However, those trading in bonds and currencies are more cautious, concerned that new fiscal stimulus could further inflate Japan’s already enormous public debt. Last year, the nation’s debt-to-GDP ratio stood at a staggering 232%, though it has been on a downward trend since 2020.

On Wednesday, Japan’s 10-year government bond yield climbed to 2.19%, marking its highest point since 1999. The yield on 30-year bonds also set a new record at 3.51%.

The yen weakened to levels against the US dollar not seen since July 2024, prompting Finance Minister Satsuki Katayama to hint at possible intervention to stabilize the currency.

Takaichi, known for her tough approach to China and national security, supports maintaining low interest rates and relaxed fiscal policies. While the Bank of Japan has been attempting to raise rates to counter inflation, Takaichi’s focus remains on reviving an economy that contracted by 0.6% in the third quarter of last year.

Public frustration over stagnant economic growth and rising living costs led to the resignation of former Prime Minister Shigeru Ishiba last October after just one year in office.

Takaichi secured leadership of the Liberal Democratic Party (LDP) and the premiership by pledging to use aggressive fiscal measures to jumpstart the economy.

She is now considering calling an early election to strengthen her political mandate, which would give her greater freedom to implement expansive spending plans.

The stock market responded positively, rising 1.5% on Wednesday to reach a new all-time high. Since the start of the year, the market has gained nearly 8%, including a 4.6% increase since speculation about an early election intensified on January 8.

Currently, the LDP holds 199 seats in the 465-member lower house of parliament and depends on 34 seats from the smaller Ishin party for a slim one-seat majority. In the upper house, which has 248 seats, the LDP and Ishin are six seats short of a majority.

Takaichi is currently enjoying strong personal approval ratings, which she hopes will translate into electoral success. However, her party’s popularity lags behind her own, and relations with their traditional coalition partner, Komeito, have deteriorated.

These challenges have led some observers to question whether she can significantly expand her majority or secure enough parliamentary support for her economic policies.