Japan Stocks Likely Set for New Growth Under Takaichi

Japan’s stock market looks poised to rally further as Sanae Takaichi becomes the country’s new Prime Minister.

Her election, the first by a woman in Japan’s history, marks not only a political milestone but also a turning point for markets betting on a renewed era of fiscal expansion and industrial strength.

Investors are responding with enthusiasm. Futures for both the Nikkei 225 and the Topix indices suggest confidence that Japan’s pro-growth policies will continue, reinforcing a year in which Japanese equities have already been among the world’s strongest performers.

Takaichi’s administration is expected to lean heavily on targeted public investment to keep the economy growing.

The focus, by most market accounts, will be on sectors that strengthen Japan’s long-term resilience—defence, technology, energy, and cybersecurity. These areas align with Japan’s ambition to fortify its industrial base and compete more aggressively on the global stage.

Fiscal expansion is not new to Japan, but the character of it is shifting. Takaichi’s rise represents continuity with a difference: a continuation of stimulus, yes, but also a drive to make spending more strategic and structural. The emphasis is now on productivity-enhancing investment, not short-term liquidity injections.

That distinction matters. Japan’s growth model, for decades hindered by deflation and demographic decline, is now evolving into one that seeks to convert public spending into long-term competitiveness.

This transformation has drawn sustained foreign investment, as global asset managers view Japan as one of the few major economies capable of expanding while others slow.

Over the past year, Japanese companies have benefited from sweeping corporate governance reforms, higher dividend payouts, and improving returns on equity. Foreign ownership of Japanese equities has risen steadily as investors recognise the country’s economic narrative has shifted decisively from stagnation to expansion.

Political stability underpins that confidence. Markets interpret Takaichi’s leadership as a signal that Tokyo will not retreat from growth-oriented fiscal policies even as Western economies tighten budgets. Her coalition’s commitment to streamlining bureaucracy and aligning public spending with structural reform goals has been particularly well received.

In this sense, Japan stands apart. While many advanced economies remain constrained by high borrowing costs and political gridlock, Japan retains both fiscal space and policy direction.

The weak yen has amplified export competitiveness, boosting corporate profits and reinforcing a cycle of reinvestment.

However, fiscal optimism comes with its own risks. The yen’s persistent weakness, hovering near multi-decade lows, reflects market caution about rising debt issuance. Japan’s bond market is watching closely as government borrowing expands to finance new investment programs.

Policy credibility will therefore be crucial. If fiscal expansion is not balanced with discipline, Japan could face mounting inflationary pressures and higher borrowing costs. For now, though, equity investors appear less concerned with arithmetic and more focused on opportunity.

Japan’s story is becoming one of purposeful expansion—a deliberate effort to use fiscal strength to modernise the economy rather than simply prop it up. This transition could prove pivotal for investors looking for growth exposure outside the US.

Takaichi’s emphasis on industrial self-reliance, technological innovation, and defence capability aligns with a broader global trend of economic security strategies. Japan’s proactive positioning in these sectors gives it an edge at a time when global supply chains are being reshaped and digital competition is intensifying.

The symbolism of Takaichi’s leadership should not be overlooked either. Her ascent signals continuity in policy but change in tone—a more assertive, domestically focused, and strategically minded Japan. That shift, while subtle, strengthens investor confidence in Japan’s long-term direction.

Equities are reflecting that optimism. The Nikkei 225, which already trades near multi-decade highs, could test new records as fiscal policy reinforces corporate profits and as foreign capital continues to flow into the market.

Analysts expect that, provided the government maintains its expansionary stance, Japanese equities will remain among the most attractive globally through 2026.

I believe that Japan currently offers something increasingly rare for international investors: clarity of policy and alignment of purpose between government and business. This clarity is translating into capital inflows, with global funds boosting allocations to Tokyo-listed companies in anticipation of sustained growth.

As Takaichi’s administration takes shape, markets are effectively voting with their capital, and they’re voting for growth.