^{Photo: The Japan Times}

Japan’s stock market surged to historic highs on Monday, fueled by optimism over political continuity and pro-growth policies after Sanae Takaichi, a staunch conservative and longtime ally of the late Shinzo Abe, was elected leader of the ruling Liberal Democratic Party (LDP). The move positions her to become Japan’s first female prime minister, and investors wasted no time reacting — driving the Nikkei 225 up more than 4%, to a fresh all-time peak.

A Powerful Market Rally Driven by Policy Expectations

The surge was led by a broad-based rally across key sectors, particularly in real estate, technology, and manufacturing. Industrial heavyweights Mitsubishi Heavy Industries and Kawasaki Heavy Industries gained 13% and 12%, respectively, while Japan Steel Works rose 14%. Robotics firm Yaskawa Electric Corp jumped over 20%, marking its strongest single-day performance in years.

The Topix Index followed suit, climbing as much as 3%, also reaching record territory. The rally reflected investor enthusiasm for what markets anticipate will be an extension of “Abenomics 2.0” — a continuation of loose monetary policy and aggressive fiscal support under Takaichi’s government.

According to Crédit Agricole CIB, Takaichi is expected to advocate for maintaining Japan’s “high-pressure economy” by keeping the Bank of Japan’s accommodative stance intact, possibly allowing for only a modest 25-basis-point rate hike by early 2026. The note added that her administration could launch a comprehensive economic overhaul focused on public-private investment partnerships to stimulate long-term demand.

Yen Breaches Key Level as Markets React

As equities soared, the Japanese yen weakened by 1.72%, briefly touching ¥150 per U.S. dollar — a psychologically important level that has previously triggered government concern. It later stabilized slightly to around ¥149.97.

The last time the yen tested this range was in August, and Japan’s Finance Minister Katsunobu Kato signaled vigilance against excessive currency weakness. Historically, the Ministry of Finance intervened in October 2022 when the yen dropped past ¥151, marking Japan’s first direct currency intervention in decades.

Analysts at Deutsche Bank noted that while the yen may experience short-term weakness as markets adjust to the political shift, “material depreciation beyond 150 is unlikely.” They added that persistent yen weakness could worsen domestic issues like over-tourism, rising property prices, and import-driven inflation, which are already straining households and small businesses.

Bond Yields Edge Higher as Markets Adjust

In the bond market, yields climbed modestly as investors priced in potential long-term fiscal expansion. The 30-year Japanese government bond yield rose more than 10 basis points to 3.263%, while the 20-year yield gained 6 basis points to 2.674%. The benchmark 10-year bond yield held relatively steady around 1.659%, suggesting expectations for continued central bank support in the near term.

Regional and Global Market Snapshot

Elsewhere in the Asia-Pacific region, market sentiment was mixed. Australia’s S&P/ASX 200 inched up 0.19%, buoyed by gains in mining and energy stocks, while Hong Kong’s Hang Seng Index slipped 0.22% and the Hang Seng Tech Index dropped 0.66%, as investors awaited China’s reopening from holidays. Markets in China and South Korea remained closed for public holidays.

In the U.S., trading on Friday reflected mild optimism despite a continuing government shutdown. The Dow Jones Industrial Average added 238 points (+0.51%) to close at 46,758.28, while the S&P 500 edged up 0.01% to 6,715.79. The Nasdaq Composite fell 0.28%, closing at 22,780.51, and the Russell 2000 advanced 0.72% to 2,476.18, showing continued confidence in small-cap growth.

A New Chapter for Japan’s Markets

With Takaichi poised to take the helm, investors see Japan entering a new but familiar economic chapter — one marked by stimulus-driven growth, export competitiveness, and renewed confidence in domestic industry.

Analysts suggest the Nikkei’s rally could extend if corporate earnings improve and the yen’s weakness continues to bolster exporters. However, the long-term outlook depends on how effectively the new administration manages inflation risks, wage growth, and foreign relations amid shifting global trade dynamics.

For now, markets appear to have spoken: investors are betting that under Sanae Takaichi’s leadership, Japan’s economic revival story still has room to run — and the Nikkei’s record highs may just be the beginning.