Global Macro Research
InflationJapan could gain a new "Iron Lady" prime minister
Sanae Takaichi could become Japan’s first female prime minister. A staunch conservative and protégé of late PM Shinzo Abe, markets have moved to price in fiscal stimulus and a dovish monetary policy view. But the constraints of LDP divisions, a minority government, and the bond market, mean we do not expect policy changes on the scale of Abenomics.
Author
Sree Kochugovindan
Senior Research Economist
Duration: 1 Min
Date: 14 Oct 2025
Key Takeaways
- Sanae Takaichi, the former economic security minister, won the LDP leadership election on 4 October, and could become Japan’s first female prime minister later this month.
- Because she wasn’t the favourite to win, the market has had to rapidly price in Takaichi’s views on fiscal stimulus, industrial policy, and her dovish monetary policy stance. The “Takaichi trade” has seen equities surge, the yen weaken, and long-end bonds sell off.
However, some of these moves may prove to be an overreaction. The details of Takaichi’s election campaign reveal a softer stance on monetary and fiscal easing than the headlines might suggest.
- Takaichi proposes targeted fiscal measures to help ease inflation pressure on households. But she has also acknowledged the need for fiscal constraint given Japan’s high debt ratio.
Indeed, the fragility of the bond market, combined with internal LDP divisions and the need to cooperate with opposition parties, will likely tame any fiscal excesses.
- Takaichi has also tempered her previous strong stance on monetary policy, saying that rates should be decided by the BoJ, and we maintain our view that the central bank will hike 25bps to 0.75% in January.
Takaichi plans investment for strategic industries such as AI, chips, quantum computing and cyber defence, which may support key equity sectors.
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