By Chikafumi Hodo
TOKYO (MaceNews) – Sanae Takaichi is poised to become Japan’s first female prime minister after winning the ruling Liberal Democratic Party’s leadership election on Saturday. Known for her conservative, right-leaning views, Takaichi has previously called for increasing government borrowing to stimulate the economy and has signaled in her willingness to reopen trade negotiations with U.S. President Donald Trump.
Takaichi’s dovish fiscal stance could provide additional tailwinds for Japan’s red-hot stock market, which has been hitting record highs. Still, such a policy may unsettle the Japanese government bond market amid concerns over Japan’s already massive public debt, the largest in the world at more than twice the size of the nation’s GDP. Renewed trade talks with the United States could also inject fresh uncertainty into the yen’s outlook.
At a media conference after winning the party election, she said that Japan will uphold the trade agreement reached with Washington last month. Still, she added that if any issue arises that could harm Japan’s national interests, it should be clearly raised as both countries continue discussions to establish a detailed framework for trade negotiations.
STILL ON DEFLATION?
On monetary policy, Takaichi, a former internal affairs minister, has said the Bank of Japan should maintain interest rates around current levels. Combined with her previous fiscal remarks, these views may weaken the yen and boost stock prices, while potentially pushing up super-long JGB yields.
At the post-election conference, Takaichi said that economic policy requires the government and the central bank to work together and cooperate effectively. “Ultimately, it is the government that must take responsibility for both fiscal and monetary policy,” she said.
Takaichi added that it is premature to conclude that Japan has completely emerged from deflation. She emphasized that demand-driven inflation is ideal for the Japanese economy and expressed her intention to engage in close dialogue with the BOJ to achieve that goal.
FISCAL DISCIPLINE
On fiscal policy, Takaichi said she has never suggested that fiscal discipline is unnecessary and pledged to make every effort to reduce Japan’s debt-to-GDP ratio gradually. However, she acknowledged that many people are struggling and businesses are facing difficulties amid the current inflationary environment. “It is the government’s role to support those who are in trouble,” she said.
In a speech after winning the LDP race on Saturday, Takaichi emphasized that the party must unite and work to regain public trust. “I’ll work very hard at the cost of my work-life balance,” she said, drawing laughter from the audience.
After failing to secure a majority in the first round, Takaichi won 185 votes in a runoff against Agriculture Minister Shinjiro Koizumi, defeating him to claim the post. She is widely expected to be designated as the successor to Prime Minister Shigeru Ishiba, who announced his resignation last month, at an extraordinary parliamentary session likely to be held on October 15, making her the first woman in Japan’s constitutional history to hold the position.
POLITICAL WILDCARD
Another political wildcard for the markets could be her nationalistic, conservative positions, which may add an element of uncertainty. Takaichi is known for her right-wing views on Japan’s wartime history and her regular visits to the Yasukuni Shrine, honoring Japan’s war dead, actions that often draw criticism from China, South Korea and North Korea. Her conservative credentials are also underscored by her opposition to legal reforms allowing married women to retain their maiden names. Nevertheless, during the LDP leadership race, she appeared to soften some of her earlier positions, including her stance on visits to Yasukuni Shrine. At the post-election press conference, she did not provide any specific details about potential visits but said that the issue of Yasukuni should not be turned into a diplomatic matter.
Takaichi will now lead the ruling party as it seeks to regain voter support after losing key general elections that left the LDP in the minority in both houses for the first time in its 70-year history. She faces urgent challenges, including rising inflation, growing social unease over immigration and the need to respond to opposition parties that have pledged large-scale stimulus measures and other reform agendas