Japanese Stocks Hit Record Highs as Takaichi’s Election Landslide Lifts Markets, Weakens Yen

BY COMFORT OGBONNA

Japanese financial markets surged to historic levels on Monday after Prime Minister Sanae Takaichi secured a sweeping victory in a snap general election, strengthening expectations that her government will push ahead with aggressive fiscal policies and tax relief. The decisive result sent equities sharply higher, pressured bonds, and briefly drove the yen to fresh lows against major currencies before officials stepped in with verbal warnings.

Takaichi’s Liberal Democratic Party won 316 of the 465 seats in the lower house of parliament, handing her a powerful mandate and a supermajority that allows legislation to pass even without approval from the upper house. The scale of the victory removes the need for coalition bargaining and gives the prime minister broad room to implement her economic agenda, which centers on higher spending and targeted tax cuts aimed at boosting growth and wages.

Equity investors reacted with enthusiasm. The Nikkei 225 rocketed 5.7% to a record 57,337.07, with gains spread widely across the market as nearly 200 of its 225 components finished higher. The rally underscored a strong wave of risk appetite, reflecting optimism that political stability and fiscal support will underpin corporate earnings. The broader Topix index also jumped, climbing as much as 3.4% to an all-time high of 3,825.67.

Technology and artificial intelligence-linked shares led the charge. Advantest, a heavyweight chip-testing equipment maker and a key supplier to Nvidia, surged more than 13% to become the Nikkei’s top performer. The stock’s sharp rise highlighted how enthusiasm around global AI investment continues to amplify gains in Japan’s tech sector, particularly when paired with supportive domestic policies.

Market strategists said investors are increasingly confident in the momentum behind Takaichi’s policy platform. Shingo Ide, chief equity strategist at NLI Research Institute, said the market sees not just political stability but the prospect of a long-lasting administration capable of delivering on fiscal promises. At the same time, he cautioned that the pace of gains may slow, suggesting that while the Nikkei could consolidate at elevated levels, a rapid climb toward 60,000 might prove excessive in the near term.

In the bond market, Japanese government bond yields rose, reflecting expectations of increased fiscal spending, though moves were uneven along the curve. Short-term yields climbed to their highest levels in decades, while longer-dated bonds steadied after an initial sell-off.

Two-year JGB yields rose 2.5 basis points to 1.3%, the highest since 1996, while 10-year yields jumped 4 basis points to 2.27%. Thirty-year yields briefly climbed as much as 6.5 basis points before easing back to around 3.545%, suggesting that concerns over long-term fiscal sustainability were tempered.

Portfolio managers noted that the election outcome may actually be the most reassuring scenario for bond investors. With the LDP no longer needing to compromise with opposition parties calling for even deeper tax cuts and broader stimulus, the risk of more aggressive fiscal expansion has been reduced.

Zuhair Khan, a senior portfolio manager at UBP, said markets appear to believe Takaichi will be a strong leader without being fiscally reckless, though he added that confidence will ultimately depend on how policies are implemented.

Currency markets were volatile. The yen initially weakened, sliding to an all-time low of 203.30 per Swiss franc and approaching record lows against the euro and the U.S. dollar. However, it rebounded sharply after Japan’s top currency diplomat, Atsushi Mimura, warned that authorities were closely monitoring currency movements with a strong sense of urgency, a signal widely interpreted as a reminder that intervention remains an option.

Following the warning, the yen strengthened to around 201.90 per franc, rose to 185.22 per euro after nearing last month’s record low, and recovered to about 156.65 per dollar after touching a two-week trough. Analysts said the bounce reflected the market’s awareness that excessive yen weakness could trigger official action.

Kumiko Ishikawa, a senior analyst at Sony Financial Group, noted that after heavy selling ahead of the election, the dollar-yen pair was already vulnerable to a pullback, and the government’s comments helped push the currency higher.

Overall, the election result has injected renewed confidence into Japanese markets, reinforcing expectations of political stability, policy continuity, and sustained support for growth. While questions remain over inflation, public debt, and the longer-term impact of fiscal expansion, investors are clearly betting that Takaichi’s decisive mandate will keep Japan’s markets buoyant in the months ahead.