Japanese equities exploded higher on Monday as markets digested the scale of Prime Minister Takaichi’s election victory. The Nikkei 225 jumped past 57,000 for the first time in history before paring gains to close 3.9% higher at 56,363.94. The TOPIX posted a record high at 3,783.94, up 2.3%. The LDP’s 316 seats, the most for any single party in postwar history, and the combined coalition tally of 352 seats, exceeded even the most optimistic pre-election projections and gave Takaichi the two-thirds supermajority that allows the lower house to override the upper chamber on legislation.
The reaction was regional in scope. The KOSPI surged 4.1%, Hong Kong’s Hang Seng jumped 1.76%, and China’s SSE Composite gained 1.41%. Thailand’s SET Index rallied nearly 4% after its own election over the weekend delivered a decisive result for the Bhumjaithai Party. Gold climbed back above $5,000 and silver rose more than 2%. The breadth of the rally reflected a combination of Japan-specific catalysts and broader risk-on sentiment, with the resolution of political uncertainty in the world’s fourth-largest economy providing a macro-level confidence boost.
Aberdeen Investments characterized the supermajority as the “best outcome” for markets over the medium term, citing the prospect of strategic investments and tax reform that would bolster equities. GMO noted that the landslide gives Takaichi an “unusually strong, multi-year mandate to execute policy,” which they view as broadly supportive for Japanese markets and corporate governance reform. The scale of the mandate eliminates the legislative friction that had characterized the previous parliament, where the LDP’s slim majority required constant negotiation and compromise with opposition parties.
The “Takaichi trade” intensified across the sectors most directly aligned with her policy platform. Defense stocks posted among the largest gains, with Mitsubishi Heavy Industries, IHI, and Kawasaki Heavy Industries all rising sharply. Construction and infrastructure names advanced on expectations that the record budget and proposed food tax suspension would proceed through the Diet without meaningful opposition resistance. Bank stocks gained on the prospect that higher government borrowing would support yields and net interest margins, though the BOJ’s rate path remains a complicating factor.
The yen weakened on the result, as markets priced in the fiscal expansion that the supermajority enables. Dollar-yen moved toward 160, the level that previously triggered official intervention. The JGB curve steepened further, with long-dated yields extending their advance. The equity-bond divergence that has defined the Japanese market since January became more pronounced: equity investors celebrated the removal of political constraints on spending, while bond investors priced in the higher borrowing that spending requires. Both responses are internally consistent, but they cannot coexist indefinitely. At some point, either the fiscal trajectory moderates or bond yields rise enough to create headwinds for equities.
For international investors, Monday’s session provided the clearest entry signal of the year for Japanese equity exposure. The political mandate is the strongest for any Japanese government since the party’s founding in 1955. The policy direction, expansionary fiscal policy, increased defense spending, corporate governance reform, and AI investment support, is unambiguous. The remaining risks are macro rather than political: the yen’s trajectory, the BOJ’s rate path, and the bond market’s tolerance for the fiscal expansion that equity investors are cheering. U.S. Treasury Secretary Scott Bessent’s comment that a strong Japan makes the United States “strong in Asia” added a geopolitical dimension to the investment case, reinforcing the narrative that international capital flows into Japan will accelerate under a stable, aligned government.
