Sanae Takaichi's (pictured) policies are most likely to be focused on fiscal expansion and monetary easing. Credit: Flickr
Following Sanae Takaichi’s election to the leadership of the ruling Liberal Democratic Party (LDP) in Japan, investors have shown excitement about what her fiscal policy will bring.
Takaichi's victory on Saturday (4 October) was "somewhat unexpected", according to Masaki Taketsume, portfolio manager of the Schroder Japan trust.
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More expected are her policies, most likely to be focused on fiscal expansion and monetary easing but, considering the ruling coalition does not hold a majority, "her ability to pursue a hardline agenda is limited", explained Taketsume.
Daniel Hurley, portfolio specialist at T. Rowe Price, said Japanese stocks jumped after the election as "investors priced in expectations of more government spending and continued loose monetary policy".
Japan's Nikkei 225 index leaped from 45,769 on 3 October to more than 47,000 when markets opened on 6 October, according to data from MarketWatch. It closed at 47,945, a record high close, with an intraday high of just over 48,150.
Shares in Toyota, SoftBank and Nintendo were up 4.7%, 4.1% and 1.6%, respectively.
The index has also skyrocketed by more than 21% year-to-date.
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Naomi Fink, chief global strategist at Amova Asset Management, said the firm remains "positive on the trend for Japan and Japanese equities".
Kate Marshall, lead investment analyst at Hargreaves Lansdown, noted potential for Japan equity funds, pointing to the Man Japan CoreAlpha and Baillie Gifford Japanese funds, in particular.
As of the end of September 2025, Man Japan CoreAlpha had grown 18% and Baillie Gifford Japanese has grown 19.7%. Both funds have outperformed the Topix index (13.7%) and the IA Japan sector (15%).
"We expect the funds to perform well in different market conditions, meaning they dovetail well for investors seeking a diversified approach to investing in Japan, but with the potential for outperformance over the long term," Marshall added.
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There are concerns in the fixed income space, however.
"Long-term Japanese government bonds have come under pressure," noted Amova's Fink, explaining the bond market "may not welcome any signs of a shift away from recent fiscal discipline" and "may act as a check on overly aggressive spending".
Japanese 30-Year bond yields hit 3.29% on 6 October, the highest year-to-date. They have since calmed to 3.12%, according to data from MarketWatch.
Schroders' Taketsume argued that the market's initial reaction "seems justified" with stronger equities and a steeper yield curve, meaning there is no need to wildly adjust tactics.
"Japan's fiscal and monetary direction aligns broadly with our outlook, implying limited implications for portfolio strategy," he explained.
T. Rowe Price's Hurley added: "Despite a strong rally in Japanese equities since April, the outlook remains positive. Japan's political shift brings a mix of continuity and fresh momentum, and we remain constructive on the outlook for Japanese equities."
