Japan markets set for renewed 'Takaichi trade'

Japan's volatile financial markets must now contend with Prime Minister Sanae Takaichi firmly in the driver’s seat after her decisive victory on Sunday, which hands her an electoral mandate to reflate the economy.

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The question for investors is whether Takaichi's electoral momentum will prompt her to expand her stimulus ambitions or if it lends her the political leeway to proceed more cautiously.

Since she began her rise to become the nation’s first female premier in October, the “Takaichi trade” has pushed domestic shares to record highs while causing a precipitous selloff in Japanese government bonds and the yen.

Voters braved heavy snowfalls in Tokyo and other parts of Japan to deliver what exit polls indicated to be the most decisive win for Takaichi’s Liberal Democratic Party since 1996.

"The stock market is a true believer in Takaichi, so the big win is going to be good news for equities when the markets open on Monday,” said Chris Scicluna, the head of research at Daiwa Capital Markets Europe.

Takaichi, a devotee of the “Abenomics” stimulus policies of the late premier Shinzo Abe, has pledged a proactive fiscal policy funded largely through bond issuance.

She came to office at a low point in power and popularity for her Liberal Democratic Party, which has ruled Japan for most of the post-World War Two period, forcing her to bargain with opposition parties with even more liberal fiscal platforms.