^{Photo: BBC}

Sanae Takaichi’s rise marks a historic moment in Japanese politics. After securing the presidency of Japan’s ruling Liberal Democratic Party (LDP), the 63-year-old lawmaker is on the brink of becoming Japan’s first female prime minister, signaling a potential continuation — and evolution — of the late Shinzo Abe’s Abenomics legacy. Her ascent follows Prime Minister Shigeru Ishiba’s resignation after the LDP’s back-to-back electoral setbacks in 2024 and 2025, leaving the party to govern as a minority.

From Hardline Conservative to National Leader

Known for her firm conservative views, Takaichi has long been a political powerhouse within the LDP. As a protégé and close ally of Shinzo Abe, she has built her reputation as a staunch defender of his economic policies and nationalist ideals. Speaking shortly after her victory, Takaichi pledged to “work, work, work” to turn citizens’ anxieties about Japan’s future into hope.

Her victory, however, comes at a time of profound challenge — from rising living costs and sluggish wage growth to increasingly tense relations with China and the U.S. The Japanese yen has depreciated by nearly 20% over the past two years, intensifying import costs and household strain.

Navigating Political Uncertainty

Takaichi’s immediate test will be consolidating power in parliament. With the LDP lacking a clear majority, she must secure cooperation from at least one opposition party to ensure a working government when the Diet convenes on October 15. Analysts say opposition parties face a strategic dilemma: joining a coalition could expand their influence but risk alienating voters frustrated with the ruling party’s dominance.

According to research firm BMI, coalition negotiations will determine how stable her administration can be in its early months. If successful, her government will still face pressing challenges: a cost-of-living crisis, delicate trade relations with U.S. President Donald Trump’s administration, and growing domestic concerns about Japan’s increasing foreign workforce and visitor numbers.

Abenomics 2.0: Revival or Reinvention?

Economically, Takaichi is expected to double down on Abenomics — a blend of aggressive monetary easing, government spending, and structural reforms introduced under Abe. She has criticized the Bank of Japan (BOJ) for considering rate hikes, emphasizing that premature tightening could stall growth.

The BOJ, which ended its negative interest rate policy in March 2024, has maintained rates at 0.5%. Economists warn that continued stimulus under Takaichi could keep inflation above the 2% target, particularly with Japan’s yen trading near ¥155 per dollar — its weakest level in decades.

“Reintroducing large-scale fiscal spending and maintaining a weak yen may boost exports,” said Tokyo-based analyst William Pesek, “but it risks further squeezing consumers already burdened by rising prices.”

Still, the LDP views Takaichi as the best candidate to navigate Japan’s economic diplomacy, especially with Washington. Her pragmatic but firm stance may prove crucial in negotiations with the Trump administration, particularly regarding trade commitments and Japan’s $550 billion investment pledge in U.S. projects.

Market Reaction and Sector Impact

The Nikkei 225 surged over 4% following her leadership win, reflecting investor optimism over policy stability. Citi analysts forecast a near-term rally target of 47,000, but caution that valuations are stretched, with the Topix index trading at a 12-month forward P/E ratio near 16x, close to a historical high.

Markets expect consumer, defense, and export-oriented sectors — including major players like Toyota, Mitsubishi Heavy Industries, and Hitachi — to benefit from her leadership. Conversely, financial and real estate stocks may face pressure if interest rates remain suppressed.

Foreign Policy and Regional Tensions

On the international front, Takaichi is a well-known China hawk and a vocal advocate of constitutional revision, particularly Article 9, which renounces Japan’s right to wage war. Her hardline stance aligns with Japan’s ongoing efforts to bolster defense spending, which now exceeds 2% of GDP for the first time since World War II.

Her close ties with Taiwan could further strain relations with Beijing. Taiwan President Lai Ching-te praised Takaichi as a “staunch friend of Taiwan,” expressing optimism about deepening bilateral cooperation. However, her repeated visits to the Yasukuni Shrine — which commemorates Japan’s war dead, including convicted war criminals — have drawn criticism from both China and South Korea.

“Her foreign policy will walk a fine line,” said Kei Okamura, managing director at Neuberger Berman. “She must balance her nationalist principles with pragmatic diplomacy to maintain strong ties with the U.S. and avoid destabilizing Asia’s trade ecosystem.”

A Defining Moment for Japan

As Japan prepares for a leadership shift, the question is whether Takaichi can navigate the complex blend of domestic and international pressures while making history as the country’s first woman prime minister.

Her leadership could shape not only Japan’s economic future but also its role in a region facing heightened geopolitical uncertainty. Whether her tenure represents continuity or transformation will depend on how she balances her conservative ideology with the practical demands of governing a rapidly changing Japan.