With Japan Set to See First Female Leader, Here’s What Investors Need to Know

The ruling party in Japan has selected the conservative Sanae Takaichi as its leader, meaning that she is due to become prime minister by the middle of the month.

Takaichi, 64, will be the first female leader in Japan’s history, a country that still battles with how best to integrate women into the work force.

But what else do investors need to know?

Abenomics Back in Action

Takaichi, a former broadcaster who has been in parliament since 1993, is a protégé of the late Shinzo Abe, Japan’s longest-serving prime minister, and has vowed to revisit his “Abenomics” program of reforms.

She was elected president of the Liberal Democratic Party (LDP) on Saturday, in something of a surprise. Shinjiro Koizumi, son of a popular previous prime minister, was thought to be the front runner.

Takaichi is a social conservative who won the internal party vote with backing from Abe’s camp. Her preference for government stimulus spending sent stocks to record highs, and caused a plunge in the Japanese yen.

Japanese Stocks Set New Records

The blue-chip Nikkei 225 shot up 4.8% on Monday in the first reaction to her party win. The broad-market Topix rose 3.1%. Both set new records for the high close, taking the Nikkei to a 22.0% advance this year, and the Topix up 17.0%. The Japanese benchmarks are outdoing the 14.9% gain in the S&P 500 so far in 2025.

The markets in Tokyo moved higher again on Tuesday, only to give up that ground by the close. The Nikkei rose as much as 1.2% in morning trade, but ended the day basically flat on a 0.01% gain. Likewise, the Topix moved ahead 0.7% in the morning, only to close up 0.06%. The gains, mind you, did meant the indexes pushed farther into record territory for the close.

The yen weakened from ¥147 to the U.S. dollar to ¥150.58 as I write. The currency had come off its 2024 very weak levels north of ¥161, with the central Bank of Japan (BOJ) in tightening mode, and looking for the opportune time to raise interest rates. Its hike in March 2024 was the first in 17 years.

But Takaichi takes Abe’s view in favoring low interest rates as a way to stimulate the Japanese economy. It was under his watch that the BOJ in 2016 took interest rates into negative territory, in an attempt to spur consumer and corporate spending.

Rate Hike Now Off the Cards

Takaichi will likely seek to ward off any rate hikes this year. She might tolerate a 25-basis-point rise in January, provided that’s the only hike before 2027, according to a research note from Takuji Aida, chief Japan economist at Credit Agricole, who has advised her on economic policy. Both Takaichi and Aida favor bigger government spending and low rates as ways to reflate the economy.

Are they out of step? Japan’s inflation rate has been above the BOJ’s target of 2.0% since March 2022. The BOJ would generally like to see inflation coupled with wage growth, allowing for some slight price increases in goods, for a country that long contended with deflation.

In fact, inflation is one of the major gripes that led to the incredibly poor showing by current Japanese PM Shigeru Ishiba in elections in July. I noted when I was in Okinawa just before the vote that the shock increase in the price of rice, such a core staple and symbolic crop, was causing immense dissatisfaction. At its height in May, a 5kg bag cost ¥4,280 (US$28), double the price of a year ago.

Higher Prices After All?

Takaichi largely agrees — though her methods may differ, and there’s now scant chance of any BOJ change on October 30. Markets had priced in a 60% chance of a rate hike before her victory.

“What would be best would be to achieve demand-driven inflation, where wages would rise and drive up demand, which in turn causes moderate price rises that boost corporate profits,” she said in a press conference after her win.

It’s a tough position. The very weak yen makes imports and corporate inputs more expensive, in a country that imports all its oil.

Takaichi should be confirmed as prime minister when Japan’s parliament, the Diet, votes on the issue on October 15. It’s not a 100% certainty because the LDP has lost its outright majority in both houses. But the political opposition does not appear united enough to mount a consolidated front to challenge her.

Iron Maiden and Deep Purple

As the International Intrigue newsletter points out, we reporters are contractually obliged to point out that Takaichi played drums in a metal band while in college. She’s also been interviewed by Metal Hammer magazine, still maintains a drum kit at home, and cites Deep Purple’s Burn and the Iron Maiden track Run to the Hills among her fave tracks. So she will bring a dose of personality to the office, something sorely lacking in Abe’s three successors.

Takaichi also spent two years early in her career working as a congressional fellow for Pat Schroeder, the first female U.S. Representative from Colorado. Takaichi was first elected as an independent, but soon joined the LDP, which has governed Japan virtually the entire time (bar two small breaks) since its formation in 1955.

Now, Takaichi has a nationalistic stance that favors reform of Japan’s pacifist post-war constitution, to allow it to have a “National Defense Army,” instead of what’s currently called Japan’s Self-Defense Forces.

Her visits to the Yasukuni Shrine, the Shinto shrine that honors Japan’s war dead, will irk neighbors South Korea and China. The shrine lists some 2.5 million people, including 14 men charged with Class A war crimes during World War II. While Takaichi visited the shrine on August 15, the 80^th anniversary of Japan’s surrender, she says she will “make an appropriate decision at the proper time” while in office as to how to honor the war dead.

Trump Opts for No-Name Praise

Takaichi will undoubtedly reach out to U.S. President Donald Trump. Trump, who formed a close bond with Abe, didn’t attempt to name Takaichi in a congratulatory social media post, and incorrectly said she has already been elected prime minister. But he called her “a highly respected person of great wisdom and strength,” and called her party victory “tremendous news for the incredible people of Japan. Congratulations to all!”

Takaichi was the only candidate to suggest renegotiating Japan’s trade deal with the United States. Despite his election loss, Ishiba vowed to remain in his post until the U.S. trade deal was agreed in late July, with Japanese imports into the United States taxed at a blanket 15%. It is not yet clear how Japan will deploy US$550 billion in agreed investment, most of which Japan has described as government loan guarantees.

Trump is due to attend the APEC Summit in South Korea from October 31-November 1. It’s possible he will stop in Japan to congratulate Takaichi personally. While in Korea, Trump may also seek to meet Chinese President Xi Jinping on the APEC sidelines.

Women in the Cabinet?

Of course, Takaichi is a highly successful politician with many strings to her bow. But the fact she is a woman who cites Britain’s first female prime minister, Margaret Thatcher, as her inspiration captured the initial headlines. This was Takaichi’s third run at the top LDP job.

Her tough stance on immigration (and tourists) helped her inside the LDP, which has been losing voters to upstart parties such as the far-right Sanseito. Its leader, Sohei Kamiya, championed a “Japanese First” slogan, helping the party win 14 seats in July’s vote, making it the fourth-largest opposition party.

Takaichi herself holds somewhat conflicting views on the issue of women in the work force. She has in the past praised the ryosai kenbo concept of “good wife, wise mother” as a traditional ideal, and she has criticized efforts to reform a law requiring wives to take their husbands’ names. But she now also pledges to increase the number of women in her cabinet to levels similar to those in the socially progressive “Nordic countries.”

“I wouldn’t appoint women just because they’re women,” she says. “But the plan is to pick far more women who are capable and willing to serve the nation.” Personally, she says “I am abandoning the phrase ‘work-life balance,’” she said. “I will work, work, work, work, and go on working.”

Abe championed “womenomics,” a term coined in 1999 by Kathy Mitsui, then chief Japan strategist at Goldman Sachs. Abe developed initiatives and set targets designed to bring more women into the work force, but left office in 2020 with much of the positive work undone by the pandemic. Abe had seven women in his cabinet when he announced his “womenomics” plans, but only two when he left.

Takaichi could also find it relatively hard to identify suitable candidates. Only 13% of the LDP’s lawmakers in the two houses of parliament are women — far from its target to see that ratio rise to 30% by 2033.