This move has been welcomed by the stock market, with Takaichi's election being greeted by a rise of almost 5% in the Nikkei on Monday. This rise brings the index up 20% in 2025 and sets a new record of almost 48,000 points.

Source: MarketScreener

The markets welcomed this appointment because Sanae Takaichi is following in the footsteps of Shinzo Abe, Prime Minister from 2012 to 2020, who was a proponent of fiscal and monetary stimulus. This marks a shift from the policy of the outgoing prime minister, Shigeru Ishiba, who favored risky assets.

However, it will be necessary to watch developments in the bond markets, as long-term Japanese interest rates have already risen to levels not seen since the last century, mainly due to concerns about investor demand for Japanese debt. The scope for fiscal stimulus therefore appears to be limited.

Is the Bank of Japan under pressure?

Unless the Bank of Japan becomes more accommodative. Already, Takaichi's appointment is pushing back market expectations of rate hikes.

However, an economic advisor has said that Takaichi could tolerate a rate hike between now and January, while specifying that the BoJ should maintain an accommodative monetary policy.

The Bank of Japan began normalizing its monetary policy in March 2024, after keeping its key interest rates in negative territory for a long time. Since January, the benchmark interest rate has stood at 0.5%.

Nevertheless, the Bank of Japan continues to tighten monetary policy. At its last meeting, the BoJ announced the gradual sale of its ETFs.