“Japan and how the recent election may impact global markets”
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Market Mood
Japan’s recent election delivered a historic victory for Sanai Takaichi and the LDP, giving them a dominant majority in the lower house. This strong mandate is expected to enable bolder reforms, though challenges remain: sluggish growth, high public debt, and an aging population. A key risk is balancing stimulus without driving government bond yields sharply higher.
The Japanese yen, long used in global carry trades due to low interest rates, could see volatility if rates rise. Markets have responded positively: equities rallied after Takaichi’s win, and the yen strengthened. Bond yields have edged higher but remain well below U.S. levels.
Japanese equities, trading at a discount to U.S. stocks, appear attractive given potential reforms, while Japanese bonds look less compelling globally due to low yields and fiscal pressures. Overall, maintaining equity exposure seems sensible, but caution is warranted on fixed income