"Takaichi-trade" is back: Japanese stocks soar over early election bets

Japan's stock market rallied sharply, while the yen and government bonds collapsed amid reports that new Prime Minister Sanae Takaichi may soon call an early election. This is a standard investor reaction to the strengthening position of Takaichi, who advocates aggressive economic stimulus, low interest rates and defense spending.

Japanese stock indices Nikkei 225 and Topix updated intraday records on January 13, rising at the moment by 3.6% and 2.4% respectively. The yield on 30-year Japanese government bonds jumped 12 basis points to 3.52%, while yields on securities with other maturities also rose. The yen fell to 158.8 per dollar, approaching levels not seen since July 2024, Bloomberg reports. On January 12, the Tokyo Stock Exchange did not work due to the country's celebration of Adulthood Day.

Japan's first-ever female prime minister is considering dissolving the lower house of parliament, which would trigger a re-election in February. Given Takaichi's high popularity, an early election could give her Liberal Democratic Party (LDP), which currently does not have a majority in either house, a chance to win additional seats, Nikkei Asia reported.

Shares in sectors that will benefit from state support from the Takaichi government, including defense, artificial intelligence and nuclear energy, were the leaders of growth at the auction in Tokyo, Bloomberg writes. Bonds of defense Kawasaki Heavy Industries jumped 10%, suppliers of equipment for chip production Lasertec and Tokyo Electron - by 11% and 9% respectively. Quotes of the engineering company in the field of nuclear energy Toyo Engineering soared by 15%. The weakening yen played into the hands of Japanese exporters: shares of Toyota Motor rose by almost 7%, and Hitachi - by 2.6%.

Takaichi's aggressive fiscal spending policies since being elected prime minister in October 2025 have helped Japanese stocks repeatedly renew all-time highs. Hopes that she will strengthen her political mandate in early elections revitalized the Takaichi trade today, stated State Street Investment Management investment strategist Masahiko Lu. According to him, "the path of least resistance" now is to bet on the growth of the Nikkei, weakening of the yen and Japanese government bonds (the cheapening of bonds leads to an increase in their yields) as a result of the classic investor reaction to the "Takaichi factor".

Citi analysts Reta Sakagami and Keishi Ueda expect "significant near-term growth in so-called Takaichi stocks," including energy and space-related securities, as well as "stocks highly sensitive to exchange rates." However, the revival of the Takaichi Trade may be short-lived, as the LDP appears to be divided over the idea of an election, Sakagami and Ueda warned.

This article was AI-translated and verified by a human editor