The return of the Iron Lady: Markets read Japan’s political tea leaves

Japan’s ruling party just crowned a new captain, and the financial seas are already shifting. Sanae Takaichi’s ascent to LDP leader — and by default, Japan’s next prime minister — feels less like a change of guard and more like the return of a particular political ghost: a blend of Abe-era revivalism and Thatcherite conviction, wrapped in a pledge to make Japan “work like horses.” Traders can already hear the hoofbeats.

Markets, of course, don’t wait for inauguration ceremonies; they front-run them. And this one’s moving fast. With Takaichi’s victory, Japan seems poised to reopen at least parts of the Abenomics playbook — fiscal expansion, monetary patience, and a wink at a weaker yen. She campaigned on keeping rates low, calling last year’s BoJ tightening talk “stupid.” Even her toned-down version this year still signals resistance to hawkish drift. The immediate implication is simple: any lingering expectation of a BoJ hike on October 30 has just been slashed — from 60% odds to perhaps 25% or less. The USD/JPY sensing that the leash has slackened, could surge two big figures higher when markets open on Monday. A test of 150 USDJPY is no longer taboo; it’s practically on the table.

Takaichi’s fiscal stance is pure stimulus fuel. Her promise to pursue “responsible but active” spending is political code for keeping the taps open while claiming prudence. The new administration inherits a freshly negotiated trade pact with Washington, a 15% auto-tariff cut, and a $550 billion U.S. investment framework that could both attract and complicate Japanese capital flows. But beneath the diplomatic niceties lies the old tension: Washington’s quiet insistence that allies shoulder more defense costs — and the unspoken threat that Treasury’s FX enforcer, Scott Besent, won’t tolerate a yen collapse north of 150 without protest. The game board is set for a tug-of-war between Tokyo’s stimulus instincts and Washington’s currency patience.

Her admiration for Thatcher is more than rhetoric; it’s a worldview. She wants Japan to reindustrialize with discipline and pride, even if that means stirring old ghosts. Her vow to keep visiting Yasukuni Shrine — long a sore point for Beijing — signals a willingness to provoke in defense of national identity. It’s geopolitics with a moral spine, but markets hear something else: a return of political edge, risk premium, and a stronger fiscal-military complex narrative that supports industrial spending and infrastructure plays. The Nikkei will likely welcome the reflation impulse, while super-long JGBs — the 30- and 40-year maturities — may bear the cost, their yields inching higher as investors price in heavier issuance.

Still, Japan’s policy mix under Takaichi could be paradoxically bullish for risk assets. Fiscal expansion paired with delayed tightening is the closest thing to a macro cheat code: equities lift, yields steepen modestly, and the yen stays conveniently soft. For Japan’s exporters and global investors hunting carry, it’s a sweet spot. But it also comes with a countdown — the longer the BoJ stays behind, the more speculative energy builds in yen-short trades, and the greater the eventual whiplash when policy finally catches up.

Traders who were positioned for a Koizumi win — the market’s preferred continuity candidate — are now scrambling to re-mark their books. Monday’s open will likely feature a classic Tokyo rerun: dollar-yen gapping higher, Nikkei futures chasing, and JGBs adjusting reluctantly. The key will be whether the BoJ chooses to push back or ride the wave. Governor Ueda faces a harder hand now; his October 30 decision will be less about inflation and more about political optics. The market knows it — and will trade accordingly.

In her victory speech, Takaichi said she was not “happy,” only aware of the hardships ahead. Markets might say the same. For investors, this is not the dawn of something new, but the revival of a familiar economic gospel — stimulus without shame, monetary patience dressed as prudence, and an export sector fed on a weaker yen. It’s Abenomics reborn with a feminist face and an iron will.

Japan’s Iron Lady has arrived. The market will be galloping on Monday.