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Global Macro Research
Asset prices

Japan: A pivotal snap election

Prime Minister Sanae Takaichi hopes to win a stronger mandate in the lower house election on 8 February 2026. We outline three scenarios, with policy and market implications.

Author
Sree Kochugovindan
Senior Research Economist

Duration: 1 Min

Date: 04 feb 2026

Key Takeaways

  • Japanese assets are proving highly sensitive to fiscal headlines and play a key role in broader global financial markets, making the upcoming general election particularly important.

  • We outline three scenarios with policy and market implications: 1) decisive victory for the LDP or ruling coalition; 2) narrow victory for the LDP/Ishin coalition; 3) LDP loses majority and Takaichi resigns.  
  • Our base case is a decisive victory for the ruling coalition. The latest surveys signal a strong win for Takaichi’s administration, with a single party majority potentially in reach.   
  • A decisive win for Takaichi could be the best outcome for markets over the medium term, as strategic investments and tax reform bolster equities.  
  • And despite our more dovish Bank of Japan expectations relative to market pricing, we think the yen may gain support from a gradual increase in real rates as inflation is set to slow more than is currently appreciated.   
  • Finally, while Japanese government bond markets are at the sharp end of global long-end pressures, bond market volatility could gradually subside after the election. Despite expectations of excessive fiscal expansion, market dynamics appear to be acting as a constraint for Takaichi.   

    Read the full article. 
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