Market Rally and Economic Reactions
On Monday afternoon in Tokyo, the Nikkei 225 index rose by about 4.5%, breaking above 47,000 for the first time in history. The rally was a reflection of optimism in the economy from investors agreeing with Takaichi's approach, increased public spending and low-cost borrowing.
Takaichi has held several senior cabinet positions since 2021, including Minister of Economic Security and Minister of Internal Affairs. She is widely known for her respect for former U.K. Prime Minister Margaret Thatcher and for her belief in the philosophy of an unfettered, free-market economy. Following the announcement, stocks rose quickly in all classes, with real estate, technology, and heavy industry leading.
While Japanese stocks rallied to historic levels, the yen plunged. It fell to an all-time low against the euro, down 1.7% against the U.S. dollar, showing investors were betting on more lax fiscal policies. Economists spoke about Takaichi's plans, including spending to stimulate business, at the risk of Japan's rising debt and further weakening of the yen.
Takaichi's Economic Vision and Challenges Ahead
If appointed later this month as the successor to Shigeru Ishiba, Sanae Takaichi will become the first female prime minister of Japan. As a protégé and supporter of the late prime minister Shinzo Abe, she has stated she would carry on and expand this vision of "Abenomics", sustainable high public spending, monetary easing, and structural reform.
One challenge for Takaichi is Japan's lacklustre economic growth. She may have to deal with rising household costs and wage growth that is also slow. Another main issue will be to deal with Japan's trade relations with the U.S, particularly finalizing the tariff deal, completed under the Ishiba government.
After U.S President Donald Trump visits Japan at the end of the month, Takaichi might schedule talks aimed at strengthening trade and diplomacy, while stabilizing the currency exchange. Markets and observers expect her to negotiate an agreement with Trump, "to get the dollar down and yen up". Takaichi seems committed to balancing economic development with an orderly and stable currency.
