Sanae Takaichi poised to become Japan’s next prime minister, investors are celebrating record highs in the Nikkei, while confidence grows in Japan’s economic momentum and future growth.

Japanese financial markets are entering an optimistic phase following the election of Sanae Takaichi as leader of the ruling Liberal Democratic Party (LDP), setting the stage for her to become Japan’s next prime minister.

Investors welcomed Takaichi’s victory as a vote of confidence in expansionary fiscal and monetary policies, sparking a wave of positivity in equities and reinforcing Japan’s reputation as a resilient, growth-oriented economy

The benchmark Nikkei 225 index has already begun reflecting this sentiment, reaching an all-time closing high of 45,769.50 last Friday, surpassing the previous record set just a week earlier.

Market analysts attribute this rally to both renewed investor confidence in Takaichi’s pro-growth agenda and the unwinding of short positions, which has added momentum to the stock market.

Resona Holdings strategist Hiroki Takei called the market response a “positive surprise” for stocks, noting that continued optimism could propel the Nikkei even higher, potentially approaching the 47,000 level in the coming months.

Takaichi, 64, has consistently advocated policies inspired by “Abenomics,” the highly regarded economic program of former Prime Minister Shinzo Abe, emphasizing fiscal stimulus, strategic government investment, and incentives for private-sector growth. Her platform prioritizes demand-driven inflation supported by rising wages and strong corporate profits—an approach welcomed by investors seeking sustainable economic expansion.

While some segments of the market, particularly longer-term Japanese government bonds (JGBs), have experienced short-term volatility, this is largely a reflection of the market’s adjustment to new opportunities rather than a cause for concern. Shorter-dated JGBs have shown trends consistent with healthy economic activity, and analysts suggest that any temporary increases in yields signal confidence in Japan’s ability to manage debt while pursuing growth-oriented policies.

James Athey, fixed income manager at British investment group Marlborough, emphasized that Takaichi’s measured communication on fiscal and monetary policy reassures markets while maintaining flexibility to respond to evolving economic conditions.

The Japanese yen also experienced fluctuations in the wake of Takaichi’s victory, closing at 147.44 per U.S. dollar last Friday with a weekly gain of 1.4%.

Rather than signaling instability, these movements reflect the dynamic adjustment of currency markets to stronger economic prospects, with investors responding to Japan’s anticipated acceleration in demand-driven growth.

Takaichi herself underscored the importance of coordinated efforts between the government and the Bank of Japan (BOJ) to support sustainable economic expansion. In a press conference following her election, she highlighted the need for policies that promote wage growth, strengthen corporate performance, and enhance consumer confidence.

By fostering an environment conducive to innovation and investment, Takaichi’s leadership is expected to create new opportunities across sectors, boosting both domestic and international investor confidence.

The so-called “Takaichi trade,” which emerged prior to the LDP leadership contest, reflected widespread optimism among investors, with a focus on equities and strategic positioning in anticipation of pro-growth policies.

This sentiment, coupled with Japan’s strong fundamentals, has reinforced the view that the country’s economy is well-positioned to sustain long-term growth, offering opportunities for both domestic and international investors.

Analysts are particularly encouraged by Japan’s ability to balance growth-oriented fiscal policies with prudent economic management. Takaichi’s pragmatic approach—emphasizing targeted stimulus while maintaining long-term stability—has been positively received across global markets.

The combination of strong corporate performance, rising wages, and supportive monetary policy creates an environment in which both businesses and consumers can thrive, driving confidence in the nation’s economic trajectory.

In summary, Sanae Takaichi’s election as LDP leader has energized Japanese markets, with the Nikkei reaching record highs and investor sentiment buoyed by the promise of sustainable growth.

As the nation looks ahead to her premiership, confidence in Japan’s economy continues to strengthen, highlighting the country’s resilience, adaptability, and enduring appeal as a global investment hub.

Australia, Britain and Canada are expected to see gradual rate cuts, while the European Central Bank is seen holding steady with inflation near its 2% target.

Global growth is holding up better than expected, but the full brunt of the U.S. import tariff shock is still to be felt as AI investment props up U.S. activity for now and fiscal support cushions China’s slowdown, the OECD said on Tuesday.

In its latest Economic Outlook Interim Report, the Organisation for Economic Cooperation and Development said the full impact of U.S. tariff hikes was still unfolding, with firms so far absorbing much of the shock through narrower margins and inventory buffers.

Many firms stockpiled goods ahead of the Trump administration’s tariff hikes, which lifted the effective U.S. rate on merchandise imports to an estimated 19.5% by end-August — the highest since 1933, in the depths of the Great Depression.

“The full effects of these tariffs will become clearer as firms run down the inventories that were built up in response to tariff announcements and as the higher tariff rates continue to be implemented,” OECD head Mathias Cormann told a news conference.

OECD’s 2025 Growth Forecasts Upgraded

Global economic growth is now expected to slow only slightly — to 3.2% in 2025 from 3.3% last year — compared to the 2.9% the OECD had forecast in June.

However, the Paris-based organisation kept its 2026 forecast at 2.9%, with the boost from inventory building already fading and higher tariffs expected to weigh on investment and trade growth.

“Additional increases in barriers to trade or prolonged policy uncertainty could lower growth by raising production costs and weighing on investment and consumption,” Cormann said.

The OECD forecast U.S. economic growth would slow to 1.8% in 2025 — up from the 1.6% it forecast in June — from 2.8% last year before easing to 1.5% in 2026, unchanged from the previous forecast.

An AI investment boom, fiscal support and interest rate cuts by the Federal Reserve are expected to help offset the impact of the higher tariffs, a drop in net immigration and federal job cuts, the OECD said.

In China, growth was also seen slowing in the second half of the year as the rush to ship exports before the U.S. tariffs recedes and fiscal support wanes.

Nonetheless, China’s economy is expected to grow 4.9% this year – up from 4.7% in June – before slowing to 4.4% in 2026 – revised up from 4.3%.

In the euro zone, trade and geopolitical tensions were seen offsetting the boost from lower interest rates, the OECD said.

The bloc’s economy was seen growing 1.2% this year – revised up from 1.0% previously – and 1.0% in 2026 – down from 1.2% – as increased public spending in Germany lifts growth while belt-tightening weighs on France and Italy.

Japan’s economy is expected to benefit this year from strong corporate earnings and a rebound in investment, lifting growth to 1.1% – up from 0.7% – before momentum fades and the expansion slows to 0.5% in 2026, revised up from 0.4%.

The OECD revised its growth forecast for Britain up to 1.4% this year from 1.3%, and kept its 2026 forecast unchanged at 1.0%.

Monetary Policy Expected To Be Loose

With growth slowing, the OECD said it expects most major central banks to lower borrowing costs or keep policy loose over the coming year, as long as inflation pressures continue to ease.

It projected the U.S. Federal Reserve would cut rates further as the labour market weakens — unless higher tariffs trigger broader inflation.

Australia, Britain and Canada are expected to see gradual rate cuts, while the European Central Bank is seen holding steady with inflation near its 2% target.

Japan, however, is expected to raise rates as it continues its slow withdrawal from ultra-loose monetary policy.