Japan's First Female Prime Minister: Sanae Takaichi's Victory

A Historic Turning Point in Japan

The ruling Liberal Democratic Party (LDP) of Japan unexpectedly elected Sanae Takaichi, a pro-economic stimulus conservative, as its leader over the past weekend. Takaichi is preparing to become the country's first female prime minister.

Economic Policies and Young Voters

Known for her admiration of the Iron Lady Margaret Thatcher, Takaichi has managed to steer the party towards ultra-conservative groups like Sanseito while also appealing to younger voters. Takaichi’s policies on central bank incentives and public spending will be closely scrutinized by investors.

Market Expectations and Tactics

Investors were expecting Shinjiro Koizumi to hold a more fiscally prudent view for the LDP leadership. However, Takaichi's prior labeling of the BOJ's interest rate cuts as "foolish" created some unease in the markets. Even before Takaichi's victory, demands for tax cuts along with opposition parties led to a cautious approach among investors regarding fiscal spending. The 30-year bond sale scheduled for Tuesday will be a crucial test to gauge investor appetite.

Market Implications and Expectations

Pelham Smithers, managing director of the UK-based Pelham Smithers Associates, noted that the bond market would want to see that Takaichi's growth-focused strategies do not lead to an expansion of the public sector deficit. Katsutoshi Inadome, senior strategist at Sumitomo Mitsui Trust Asset Management, stated that Takaichi's views on loosening fiscal discipline and the BOJ not being overly tolerant with interest rate hikes would have an impact on the markets.

Defense and Trade Strategies

Takaichi’s intention to increase defense spending and the possibility of accepting a trade agreement between the US and Japan may serve as an additional source of confidence for the markets. Yuichi Kodama, chief economist at the Meiji Yasuda Research Institute, emphasized that Takaichi's political experience and the alignment of the US's tough stance against China with her policies would increase her chances of establishing a good relationship with President Trump.