Japan’s financial markets recorded dramatic moves after a snap national election delivered a decisive political outcome. Investors reacted swiftly to the strong mandate secured by Prime Minister Sanae Takaichi and her Liberal Democratic Party (LDP). Stocks surged to record highs, government bonds declined, and the yen weakened against major currencies as markets adjusted to expectations of higher spending and tax relief.
Nikkei Breaks 57,000 After Landslide Election Result
Japanese equities rallied sharply following the election result, pushing the Nikkei 225 index up as much as 5.7% to a record 57,337.07 in early trading. This marked the first time the benchmark index crossed the 57,000 level, highlighting strong investor confidence.
The broader Topix index also climbed to a new high, rising 3.4% to 3,825.67. Gains were seen across a wide range of sectors, showing that optimism was spread throughout the market rather than limited to a few stocks.
The rally followed Sunday’s snap election, in which the LDP won 316 of the 465 seats in the lower house of parliament. This result gave the party a supermajority, allowing it to pass legislation without negotiating with opposition parties. It also enables laws to be approved without support from the upper house.
Markets welcomed this clarity. A strong majority reduces political uncertainty and allows policies to be implemented more quickly. Investors focused on expectations of large-scale government spending and promised tax relief, both of which were central to the campaign. These measures are often viewed as supportive for economic activity and corporate earnings, which helped fuel the sharp rise in share prices.
Bond Yields Rise as Investors Price in Fiscal Policy
While stocks surged, Japan’s government bond market moved lower. Bond prices fell, causing yields to rise across key maturities. The 10-year Japanese government bond yield increased by up to 4.5 basis points to 2.275%. Longer-term debt saw even larger moves, with the 30-year yield rising as much as 6.5 basis points to 3.615%. Other tenors had not yet traded at the time.
Bond yields typically rise when investors expect increased government borrowing or higher inflation. Expectations of expanded spending and tax cuts raised concerns about higher debt issuance, prompting investors to sell bonds.
Last month, the 30-year bond yield surged to a record 3.88% after an initial pledge to suspend food taxes for two years. Over the past two weeks, yields had moved lower from that peak. The election outcome renewed attention on fiscal policy, leading to another rise in yields.
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From a policymaking perspective, the election result was seen as relatively supportive for bond markets. With a strong majority, the government does not need to compromise with opposition parties that were pushing for even deeper tax cuts and broader stimulus, which could have added further pressure on borrowing.
Yen Slides to Record Lows Against Major Currencies
The Japanese yen weakened sharply as markets reacted to the election and shifting expectations. The currency fell to a record low against the Swiss franc, easing 0.3% to 203.30 per franc. It also declined 0.4% to 186.55 per euro, nearing last month’s record low of 186.86.
Against the U.S. dollar, the yen dropped 0.5% to 157.95, marking a two-week low. Currency weakness often follows expectations of looser fiscal policy and rising bond yields, particularly when interest rates in other major economies remain higher.
A weaker yen can support exporters by making Japanese goods cheaper overseas, but it also raises the cost of imports. Authorities signaled they are closely monitoring currency movements, warning that developments are being watched with a high sense of urgency.
Together, the sharp rise in stocks, higher bond yields, and weaker yen reflected how quickly markets repriced assets following the clear election mandate and expectations around fiscal policy.