How Does the Takaichi Trade Progress as Tokyo Stocks Hit All-Time Highs?

Investors have given a ringing endorsement to the super-strong showing by Japanese Prime Minister Sanae Takaichi in Sunday’s election.

This is the first time that voters have been able to show how they feel about the leadership of Takaichi, who took power in Tokyo in October as a result of an internal party vote within her Liberal Democratic Party (LDP).

The gamble to call an early snap election paid off in spades. Takaichi and the LDP won a record number of seats, restoring the party’s majority in the lower house of the Diet, Japan’s parliament.

Japanese stocks were already buoyed by Takaichi’s resumption of the stimulatory “Abenomics” policies championed by her political mentor, the late Shinzo Abe, Japan’s longest-serving prime minister.

New All-Time Highs

Tokyo equities have driven to fresh all-time highs since Sunday’s results became clear. The blue-chip, large-cap-heavy Nikkei 225 is up 6.5% since Friday’s close alone, and 14.5% already so far in 2026.

The broad-market Topix, tracking some 95% of the total market capitalization in Tokyo, is up 4.6% since Friday, and 13.1% year to date.

Tuesday’s close with the Nikkei 225 at 57,650.54 and the Topix at 3,855.28 is a new high-water mark for both indexes. If the pace so far this year is at all maintained, both indexes will surely outdo the 26.2% runup for the Nikkei in 2025, and the 22.4% gain for the Topix.

Incidentally, I identified chip-testing equipment maker Advantest ATEYY [T:6857] as my top Asian equity investment heading into this year. It has outperformed the broad Tokyo market handsomely, and is looking at a 29.1% rise year to date.

Why Are Stocks So Strong?

Takaichi’s popularity was riding high heading into Sunday’s vote. It was running at 75% in December although that dipped slightly to 67% at the end of January, according to a poll by the Nikkei business daily and TV Tokyo station.

However, her personal approval rating was far ahead of her party’s popularity. The LDP had 29.4% support in a separate poll by The Asahi Shimbun newspaper and an Osaka University professor.

So it is “Sanamania” that has carried the day. The LDP won a record 316 seats in the 465-member Lower House, pushing it past the 233 level it needs for an outright majority. Together with its coalition partner, the Japan Innovation Party, they corner a combined 352 seats.

“It would be wrong to drag things along without seeking a public mandate,” Takaichi said on Sunday. She had “felt a sense of unease” to govern as a leader promoted from within the party rather than picked by public vote. She is “truly grateful” of the outcome.

Hobbled Heading Into Vote

Prior to the vote, Takaichi’s coalition still relied on the support of a handful of independent politicians to push through policy. Now, the LDP doesn’t even need its coalition partner to have a supermajority of votes in the Lower House. That’s crucial, in that the two-thirds majority can override votes from the Upper House, and would be able to propose amendments to Japan’s constitution.

Key among those would be a revision to its pacifist nature, to allow Japan to have armed forces. Japan’s equivalent of a military is currently called the Japan Self-Defense Forces, since Article 9 of the post-World War II constitution renounces the maintenance of standing armed forces, as well as any declaration of war.

Takaichi’s high approval, particularly among younger voters, stems in part to her willingness to stand up to China, as well as personal charisma that has stood her in good stead as she met world leaders such as U.S. President Donald Trump, who came calling in the Japanese capital soon after Takaichi was installed as Japan’s first female head of state.

When asked in parliament on November 7 how Japan might respond to the use of military force by China to attack Taiwan, she described such an event as a “survival-threatening situation.” That’s a technical term that would mean the Self-Defense Forces could respond, even if Japan is not directly attacked.

Savvy Social-Media Game

It is a step beyond the usual course of “strategic ambiguity” that both the United States and Japan pursue. China reacted in an uproar of political bile, with the Chinese consul general in Osaka posting that the “filthy head that recklessly sticks itself in must be cut off.” The violent rhetoric and call by Beijing to ban Japanese seafood and restrict travel to Japan only stoked Japanese support to stand tough in response.

Takaichi has also played a savvy social-media game, coming across as a dynamic presence who quotes from manga, loves heavy rock, and stresses her personal work ethic. She thanked Trump for his endorsement of her candidacy and support for the Japan-U.S. alliance, declaring that the “potential of our Alliance is LIMITLESS.” She is due to visit Washington in March.

Takaichi can now continue to pursue the “three arrows” of Abenomics, named for Japan’s longest-serving prime minister, so sadly assassinated on the campaign trail in 2022. Shinzo Abe’s three successors — Yoshihide Suga, Fumio Kishida and Shigeru Ishiba — were characterless long-time politicians who became mired in petty domestic politics, accomplishing little.

Asia’s Iron Lady?

Now Takaichi, 64, has a record-strong mandate to govern in a way that could see her emulate Britain’s Margaret Thatcher, the “Iron Lady” she often cites as an inspiration. I was a guest on the Money Talk podcast just ahead of the elections in Japan, and said her likely strong showing would be a good thing, resulting in strong and positive leadership for Japan that would be favorable for stocks and the broader economy alike.

You can find that episode here should you choose to listen!

She pushed through a record stimulus supplementary budget last year, and has pledged to suspend an unpopular sales tax on food for two years. Economists are concerned that Japan, with the highest public debt load among major nations, cannot afford such concessions.

Perhaps surprisingly, the Japanese yen has strengthened after the elections, even though Takaichi favors low interest rates and a relatively weak currency that boosts exports. It has firmed 3.2% from ¥159.33 in mid-January, just before parliament was dissolved to make way for the elections, to ¥154.20 today, and appears set to continue to strengthen.

Takaichi also vows to support government investment into “national champions,” companies that are leaders in industries such as semiconductor manufacturing and Artificial Intelligence. Besides the surge in Advantest, we’ve also seen strong gains in companies such as Kawasaki Heavy Industries KWHIY (T:7012), an aerospace, energy and defense contractor that is up 25.7% since Friday’s close, and AI investor Softbank Group SFTBY (T:9984) has rallied 17.9%.

With her strong mandate, Takaichi will now have to establish the identity of her administration in terms of nitty gritty public policy, the details behind the broad-brush strokes painted during her campaign. But she governs from a position of power that should stand her and her ambitions to reignite corporate and consumer confidence in Japan.

At the time of publication, McMillan had no positions in any securities mentioned.