After Japan’s Prime Minster Sanae Takaichi won a landslide victory in a snap election over the weekend, giving her the political room to advance her pro-growth agenda and causing equities to jump, wealth managers react.

Japanese stocks jumped to a high on Monday after Japan’s Prime Minster Sanae Takaichi won a landslide victory in a snap election over the weekend.

The Liberal Democratic Party gained a two-thirds majority in the lower house, winning 316 of 465 seats being contested. The win gives the political room for Takaichi to advance her pro-growth agenda. This includes expansionary fiscal spending and increased strategic investments in areas such as semiconductors, artificial intelligence (AI), energy security, defence and shipbuilding.

In conjunction with the announcement of snap elections, Takaichi unveiled an election pledge to cut consumption tax on food and to increase government spending which would also help lift domestic consumption.

On corporate governance, the Financial Services Agency is looking to amend the corporate governance code this year and encourage companies to put their excess cash to work by investing more in their businesses.

Here are some reactions from investment managers to the vote, highlighting how its positive for stocks and less so for Japanese bonds, as reported earlier by this news service before the vote.

Hisashi Arakawa, head of Japan equities at Aberdeen Investments
“While there are short-term risks like rising Japanese government bond yields and prevailing geopolitical tensions with China, the broader macroeconomic environment continues to work in Japan’s favour. Takaichi has also emphasised the need for responsible fiscal spending. Tailwinds of wage growth, resilient consumption and structural reforms are providing durable support for both the market and earnings. We believe that the outlook for quality remains positive, with the market increasingly rewarding companies that can deliver sustainable earnings and adapt nimbly to a shifting operating backdrop. We continue to favour high-quality companies with strong growth potential and robust ESG credentials.”

David Chao, global market strategist, Asia-Pacific at Invesco
“The scale of the victory provides the government with exceptional legislative authority, including the ability to re-enact bills previously rejected by the Upper House and to advance constitutional initiatives. Including seats won in coalition with the Japan Innovation Party, the ruling bloc now controls more than three quarters of the 465 contested seats, underscoring the strength of the mandate and significantly reducing the risk of opposition interference.

“From a market perspective, the outcome is strongly supportive for Japanese equities, particularly in the defence and economic security sectors, as Takaichi now has broad flexibility to pursue her pro-growth economic agenda and advance structural reforms. At the same time, long-dated Japanese government bond yields are likely to face upward pressure, as more proactive fiscal spending aimed at reflating the economy could increase both fiscal and inflationary risks. Overall, the combination of political stability, policy continuity, and reform optionality is likely to be viewed positively by markets, reinforcing the constructive outlook I continue to have for Japanese risk assets.”

Daniele Antonucci, chief investment officer at Quintet Private Bank (parent of Brown Shipley)
“The scale of the mandate increases the likelihood that fiscal policy will become more expansionary over the coming quarters. Unlike past stimulus episodes, the focus is likely to be targeted, with spending aimed at strategic sectors such as AI, semiconductors and defence. That raises the probability of higher public investment and stronger incentives for private-sector capital expenditure. Japanese equities have reacted positively, particularly in technology, machinery and defence-linked names. This adds to Japan’s relative equity outperformance we’ve seen over the past few months though at the same time valuations have now become more demanding. At the same time, expectations of looser fiscal policy are putting renewed downward pressure on the yen.

"Currency weakness is supportive for exporters but increases scrutiny on how expansionary policies will be financed. Bond market reactions have so far been contained, suggesting investors are waiting for concrete policy details. We no longer own Japanese government bonds: we’ve exited our position a few weeks ago, before year-end, fearing that a big fiscal boost could cause the bonds to lose value.”

Mark Haefele, chief investment officer at UBS Global Wealth Management
“We keep our attractive rating on Japanese equities and see scope for further upside, especially in sectors benefiting from domestic policy (defence, banks, real estate, IT services) and global themes (power, data centres, automation, select autos).”

David Roberts, head of fixed income at Nedgroup Investments
“We expected a landslide. We got one. We expected poor performance of short-dated bonds as a result. We got that. We owned none. We expected long bonds to be relatively immune. We got that. We owned some. Overall, as expected. We remain around 40 per cent of index weight in Japanese Government Bonds (JGB). Why? Japanese rates are in a path to normalisation. They are not there yet. As yields rise, as value improves for our clients, we will own a few more.”

Masahiko Loo, senior fixed income strategist at State Street Investment Management
“A decisive LDP victory reinforces a “turbo-charged Takaichi trade” - stronger Nikkei, steeper Japanese Government Bonds (JGB) curve and a weaker yen. The result reduces political uncertainty and strengthens the broader “Japan is Back” narrative: structurally higher yields, a competitive yen and governance-led earnings improvement, all supporting renewed confidence from global investors in Japanese assets. On equities, investor focus is broadening beyond initial “Takaichi trade” winners such as exporters, cyclicals, financials and defence. The Nikkei or Topix index as a whole benefits from fiscal support, targeted investment in AI, semiconductors, defence, energy and renewables, and ongoing corporate?governance reform, driving higher ROE, buybacks and making Japan structurally more investible.”

Alicia Garcia Herrero, chief economist, APAC, Natixis CIB and Kohei Iwahara, senior Economist, Japan & Pacific, Natixis CIB
“Japan’s Takaichi landslide victory puts us back positive for stocks and negative for Japanese bonds. These results should bring higher political stability, as the LDP was in coalition before the elections and with a very tight majority. Going forward, a Special Diet Session will be convened around February 18th where Takaichi will be nominated once again as Japan’s Prime Minister. Takaichi arguably won the public confidence to reshape the country under her vision of `resilient Japan' which revolves around pro-growth policies with national security at front. The government plans to promote investments in strategic sectors such as AI and semiconductors.

“To alleviate households’ elevated living expenditure, the LDP will consider eliminating the consumption tax on food for two years, which is highly controversial because of the potential impact of the ensuing larger fiscal deficit on JGB yields. In fact, Takaichi was silent on that measure during the campaign but she did confirm she would explore it after her victory, which might be read as a signal to LDP senior members who had opposed this measure. The government also intends to expand defence expenditure to above 2 per cent and to solidify the US-Japan alliance. Finally, the political tensions with China are likely to linger, as Takaichi does not seem to have been penalized domestically for remarks on Taiwan last November and/or China’s retaliation.

"Markets have responding confirming the `Takaichi trade' after her first election, namely stronger equity market and higher JGB yields, given the news on the consumption tax cuts and potential news expenditure. The yen appreciated somewhat but it is too early to tell as Takaichi’s position on fiscal and monetary policies still needs to be clarified.”

Kei Fujimoto, senior economist at SuMi TRUST, Katsutoshi Inadome, senior strategist at SuMi TRUST
“Securing a single-party majority in the Lower House will allow Prime Minister Takaichi’s ‘responsible, proactive fiscal policy’ to lift equities, consumption, capital expenditure, and infrastructure investment.

“Prime Minister Takaichi’s agenda of `responsible, proactive fiscal policy' - including a temporary cut to the consumption tax on food, investment in growth sectors, and increased crisis management spending - is expected to lift the economy by supporting consumption, capital expenditure, and infrastructure investment. However, the risk of fiscal deterioration remains. While stronger domestic demand may boost tax revenue, its contribution to fiscal sustainability is uncertain.

"Concerns over fiscal health could push interest rates higher and weaken the yen, raising funding and import costs for firms and potentially eroding profitability. Mitigating fiscal risks will remain a key challenge. As the LDP has secured a single party majority in the Lower House election, the Takaichi administration will likely find it easier to push forward with its policy agenda. In that case, the outlook for equities should improve, particularly in sectors highlighted in the administration’s growth strategy, including AI and semiconductors, national disaster prevention and mitigation, and national security.”

Bryn Jones, head of fixed income, Rathbones
“Overnight, Sanae Takaichi smashed the Japan election. This was the biggest electoral victory since the war, grabbing two-thirds of the votes of the lower house. But there is a strong `spend for growth' mantra and this gives investors the jitters about fiscal policy. It is going to be interesting watching Japanese Government bonds (JGB) – 10-year yields have risen 6 basis points post-election and the 30-year bonds are sideways. We suspect there will be more JGB volatility ahead, although as a global trade partner, we think Takaichi will be positive for US-East relations.”