2026-02-09 13:28:00
The “Takaichi Trade” has officially entered its second, more aggressive phase following Prime Minister Sanae Takaichi’s historic landslide victory in the February 2026 snap election.
With her Liberal Democratic Party (LDP) securing 316 seats, forming a two-thirds supermajority (352 seats) with the Japan Innovation Party (JIP), Takaichi now holds an unprecedented mandate to reshape the Japanese economy.
This “supermajority” is a game-changer for financial markets. It grants Takaichi the power to override the upper house and push through her “reflationist” agenda without the friction that hindered her previous minority government.
For traders, this has reignited the “Takaichi Trade” with a vengeance, driving the Nikkei to record highs while leaving the yen caught in a volatile tug-of-war between aggressive fiscal policy and the looming threat of government intervention.
What the Heck Is a “Takaichi Trade”?
At its core, the Takaichi Trade is a market bet on the revival of “Abenomics 2.0.” Sanae Takaichi, a protégé of the late Shinzo Abe, advocates for a three-pronged strategy:
- massive fiscal stimulus
- continued loose monetary policy, and
- aggressive government spending
The trade typically involves three primary legs:
Stocks go up. More government spending means more money flowing into the economy, which helps companies and boosts stock prices. A weaker yen also helps Japanese exporters sell goods cheaper overseas.
The yen goes down. If Japan keeps interest rates low while other countries (like the U.S.) keep rates higher, investors sell yen to buy higher-yielding currencies. Lower rate expectations = weaker yen.
Bond yields go up. More government spending means Japan has to issue more bonds (borrow more money). When bond supply increases, and investors worry about debt levels, yields rise as bondholders demand better returns.
The Landslide Impact: Mandate for Stimulus
Takaichi called a snap election just three months into her term, betting that voters would give her a strong mandate. It was a massive gamble—she promised to step down if her coalition lost its majority.
Instead, she crushed it.
Her Liberal Democratic Party (LDP) won 316 seats out of 465 in the lower house—clearing the 310-seat threshold needed for a supermajority. This means Takaichi’s party can now override the upper house and push through virtually any policy it wants.
For context, this is the first time since World War II that a single party has secured a two-thirds majority on its own. The opposition was completely decimated.
Takaichi’s personality and style likely resonated with younger voters who weren’t previously interested in politics. Her “work, work, work, work, and work” catchphrase became the phrase of the year. She’s also developed an unusually strong relationship with U.S. President Donald Trump, who gave her his “total endorsement” days before the election.
The election handed Takaichi enormous political power—and markets immediately started pricing in what that means for the economy.
How Markets Reacted Monday Morning
Monday’s market action showed the “Takaichi Trade” in full force—with one important twist.
Stocks soared. The Nikkei 225 exploded higher, crossing 57,000 for the first time before closing up 3.9% at 56,363. The broader Topix also hit a record high. Traders are betting Takaichi’s supermajority means growth-friendly policies will actually happen: tax cuts, infrastructure spending, and investments in AI, semiconductors, and defense.
Bond yields jumped. JGB yields climbed, with the 10-year yield rising nearly 4 basis points to 2.274% and 20-year yields adding 3 basis points to 3.158%. And why not? Takaichi’s ¥21.3 trillion stimulus package and promised food tax cuts mean more government borrowing. Earlier in January, Japan’s 40-year yield hit 4.24%, the highest in over three decades. Bond traders are saying: “We believe she’ll spend big, but we’re not sure how she’ll pay for it.”
The yen wobbled. The yen actually strengthened to 156.88 against the dollar, the opposite of what you’d expect, due to possible intervention risk. See, Finance Minister Katayama emphasized fiscal sustainability and warned she’d “communicate with markets if needed.” Translation: “Don’t push the yen past 160, or we’ll intervene.” Japan spent roughly $100 billion defending the yen in 2024, mostly around the 160 level. Traders are cautious because coordinated U.S.-Japan intervention could trigger a violent yen squeeze.
That said, the fundamental driver for yen weakness remains intact. Japanese 10-year bonds yield 2.27% while U.S. Treasuries yield over 4%. That 2%+ gap makes holding yen unattractive over time.
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Key Lessons for Traders
Political mandates move markets. Takaichi’s supermajority gives her the power to implement her agenda with minimal opposition. Markets immediately priced in the implications: more spending, looser policy, weaker yen, higher yields. Elections aren’t just politics—they’re fundamental catalysts.
The “Takaichi Trade” has limits. While the initial reaction was predictable (stocks up, yen down, yields up), intervention risk creates a ceiling. The 160 level on USD/JPY is a clear line where the trade becomes dangerous. Never ignore the risk of official intervention—central banks and finance ministries can move markets violently in minutes.
Fiscal expansion isn’t always bond-friendly. More government spending usually helps stocks, but it can punish bonds if investors worry about debt sustainability. Japan’s bond market has been volatile because traders are questioning how Takaichi will fund her promises without exploding the deficit.
Interest rate gaps drive currencies. The yen remains fundamentally weak as long as Japanese rates stay far below U.S. rates. Even with intervention fears, the 2%+ gap in 10-year yields makes holding yen unattractive. This structural pressure keeps the “Takaichi Trade” alive over the medium term.
The Road Ahead: A High-Stakes Experiment
Japan is now entering a high-stakes economic experiment: what happens when a government with an overwhelming mandate for stimulus clashes with a central bank that theoretically needs to tighten to control inflation?
For traders, the setup is clear but risky. The path of least resistance is stocks higher, yen weaker, yields higher—but only up to a point. If USD/JPY pushes past 160 and intervention hits, the trade could reverse violently.
Watch the next few weeks carefully. If Takaichi delivers on her promises and the yen stays below 160, the trade continues. If intervention strikes or fiscal discipline returns, expect sharp reversals.
Welcome to Japanese markets in 2026—where politics, stimulus, and intervention risk are creating one of the most volatile and opportunity-rich environments in years. Trade smart, manage your risk, and never forget that in forex, the best opportunities often come with the biggest dangers.
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