Sanae Takaichi likely to be Japan's first woman prime minister

Tokyo: Sanae Takaichi is likely to be Japan's first woman prime minister after winning the race on Saturday to lead the ruling Liberal Democratic Party.

The former internal affairs minister, a conservative nationalist with an expansionary agenda, is expected to replace Prime Minister Shigeru Ishiba since the LDP is the largest in parliament.

Below are comments on the outcome:

Tomohisa Ishikawa, Chief Economist, Japan Research Institute

(On Takaichi’s advocacy of 'responsible proactive fiscal policy')

"The key issue is whether it's possible to strike a balance between fiscal reconstruction and economic growth. Since the term 'responsible' is included, I hope that attention will be paid to fiscal discipline. That said, she has mentioned that issuing deficit-financing bonds is among the options, and given her stance of 'inheriting Abenomics,' we must be cautious about the risk of fiscal expansion."

(On the BOJ's interest rate policy)

"It may have become more difficult for the BOJ to raise interest rates. However, with the yen weakening and prices rising, it has become harder for politicians to interfere in monetary policy as they did in the past."

(On overall economic policy)

"I think economic policy has taken a slightly more realistic approach."

Shigenobu Tamura, Political Commentator, Tokyo

"I was surprised by Sanae Takaichi's victory, but I believe that her overwhelming results in the rank-and-file member votes influenced the parliamentary voting. It was also significant that former Prime Minister Taro Aso came out in support of Takaichi.

"The birth of Japan's first female prime minister is a very welcome development and will be highly regarded internationally. I also expect that Takaichi will be able to win back the support of the solid conservative base that the LDP lost in lower house and upper house elections.

"I expect that U.S. President Donald Trump will not take a strong stance against a female prime minister. Japan remains an important partner in the U.S. strategy towards China, so the relationship between the Takaichi administration and President Trump should be good."

Daisuke Uno, Chief Strategist, Sumitomo Mitsui Banking Corp

"Amid a global political trend of 'putting one’s own country first' Japan seems to have elected someone who aligns with that sentiment. Within the LDP, there has been a swing back towards the former mainstream faction. Considering that Sanae Takaichi won the votes of party members and supporters, it appears that public sentiment has been reflected in the outcome.

"If Takaichi seeks to collaborate with opposition parties going forward, she is likely to align with the Democratic Party for the People, which shares similar policy views. This could bring more attention to proactive fiscal policies. However, given that she reportedly received support from the Aso faction during the leadership race, and that her position will change as she assumes the role of Prime Minister, it remains uncertain whether she can implement the policies she has previously advocated.

"An example is her proposed measures to address inflation that include abolishing the provisional gasoline tax rate and introducing refundable tax credits, which are somewhat different from a consumption tax cut (that she previously advocated). Therefore, concerns about aggressive fiscal policy may ease somewhat.

"Regarding the Bank of Japan's monetary policy, based on Takaichi’s statement that 'the government sets the direction, and the BOJ determines the means,' it is expected that there will be some restraint on monetary tightening.

"The recent speculation about an early interest rate hike by the BOJ is likely to recede. In fact, recent comments from the BOJ's governor and deputy governor have consistently aimed to balance against excessive expectations of rate hikes. With Takaichi's victory, it is expected that the outlook for BOJ rate hikes will be dampened.

"At the start of the week, the yen bond market is likely to see buybacks led by the short- to medium-term zone, and long-term interest rates may fall below the 1.60% range. As for the super-long-term zone, upward pressure on interest rates is not expected to be significant. As the party's personnel appointments and potential coalition with opposition parties become clearer, fiscal policy will likely be reassessed."

Hiroki Takei, Strategist, Resona Holdings

"This could be considered a positive surprise for stock prices. In the short term, Japanese equities are likely to react with gains. Prior to the announcement, overseas betting sites had viewed Farm Minister Shinjiro Koizumi as the frontrunner.

"Recently, the Nikkei average has been trading near its highs, with an increase in the ratio of short-selling and a buildup of margin short positions. If short-covering is triggered, the rally could gain momentum, potentially pushing the index toward the 47,000 level.

"On the policy front, Takaichi has strongly emphasised economic growth, which could benefit sectors such as semiconductors, artificial intelligence (AI), space-related industries, defence enhancement, and national resilience. After the Japan-U.S. tariff agreement, there was a shift in capital from domestic demand stocks to export-oriented ones, but domestic demand stocks may once again become attractive investment targets.

"The fact that she is the first female president of the LDP could strongly signal change to investors. If foreign investors, anticipating structural reforms, begin buying physical shares, a moderate medium- to long-term uptrend could be expected. However, if the rally is led by short-term players through futures trading, it could reverse quickly, so caution is warranted.

"In terms of cooperation with opposition parties, the Democratic Party for the People is likely to be the closest in terms of policy alignment. In the short term, the stock market may focus on a growth-driven rally, but fiscal discipline could become more relaxed. As the market stabilises, concerns about over-valuation may emerge, and attention will need to shift to long-term interest rate trends."

Yoshinobu Tsutsui, Chair, Japanese Business Lobby Keidanren

"Takaichi is a seasoned politician with deep expertise across a wide range of policy areas, including the economy and foreign affairs.

"As the first female (LDP) president, we expect her to revitalise the LDP and address Japan's pressing challenges, including tax, fiscal and welfare system reform, labour market reform and energy security.

"We hope that, under the new leadership, the LDP will unite and, together with its coalition partner Komeito, swiftly establish a stable political framework capable of steadily advancing key policies."

Takahide Kiuchi, Executive Economist, Nomura Research Institute

"Takaichi adheres to the traditional reflationist view that the government should determine the broad direction of monetary policy. As such, there is a possibility she may intervene in the Bank of Japan’s policy operations going forward. The interest rate hike expected in October - already priced in by about 60% of the market - may be delayed by the BOJ, as a failed hike could invite political interference. That said, unless the U.S. economy weakens significantly, I don't believe the Takaichi administration would halt the BOJ’s overall policy of rate hikes.

"Among the five candidates, Takaichi has advocated the most expansionary fiscal policy. This could lead to rising interest rates, a weaker yen, and higher stock prices in financial markets. However, since the LDP is a minority ruling party in both houses of the Diet, cooperation from opposition parties is essential to implement her policies. Therefore, I expect the more extreme aspects of her proposals will be diluted during the legislative process.

"To expand its coalition under Takaichi, the LDP would likely look to parties with similar policy positions. The Sanseito party is ideologically close, but a coalition with them wouldn't help secure a majority in the lower house. Realistically, the Democratic Party for the People may be the most viable partner.

"The emergence of Japan's first female prime minister would likely be welcomed, especially in Western countries. On the other hand, her hawkish foreign policy stance may raise concerns among Asian nations.

"While Takaichi has clearly articulated her positions on foreign and security policy, her limited hands-on experience as a cabinet minister raises concerns. This also casts some doubt on her compatibility with U.S. President Donald Trump, who is visiting Japan this month. While they may align on strengthening Japan's defence capabilities, any overt resistance to U.S. demands could lead to friction."

Tohru Sasaki, Chief Strategist, Fukuoka Financial Group and Former Bank of Japan Official, Tokyo

"In the last speech between Koizumi and Takaichi, I think Takaichi was a bit better, so that was supportive of her victory. So it's not a huge surprise.

"Takaichi was the most popular candidate among the non-congressional LDP members and that was a key factor for her victory.

"Because of the support from the non-congressional members of the LDP, her cabinet is likely to be very popular, and therefore influential on monetary policy. So I think the BOJ may have some difficulty in raising rates.

"I think on Monday morning, the yen is going to depreciate. Dollar-yen may try 150 or beyond, but these kind of reactions tend to be short-lived.

"In stocks the strong trend is likely to continue. It's a bit difficult to say on the JGB market because Takaichi will make it difficult for the BOJ to raise rates, so yields will go lower, but at the same time, she's likely to expand spending, which is negative for bonds. A steepening of yield curve is a possible reaction.

"Probably the financial market will take this result as a positive, at least at first.

"It will be interesting to see how her dialogue goes with Trump. She will probably be a tough negotiator."

Tomohisa Ishikawa, Chief Economist, the Japan Research Institute, Tokyo

"Takaichi talked about 'responsible expansionary fiscal policy.' The question is whether this approach can achieve both restoring fiscal health and economic growth. I'd like to hope there's greater consideration for restoring fiscal consolidation than in the past.

"That said, she has said that deficit-financed bonds are also among the options, so in terms of continuing Abenomics, I think we must also be mindful of the risk of fiscal expansion.

"I do think it's become harder for the Bank of Japan to raise interest rates.

"Ultimately, if 'responsible expansionary fiscal policy' means money flows into high-growth sectors rather than simply being handed out, then stocks would rise and the yen wouldn't weaken excessively."

Kazutaka Maeda, Economist, Meiji Yasuda Research Institute, Tokyo

"Among the five candidates, Takaichi would represent the sharpest departure from fiscal hawk Prime Minister Shigeru Ishiba’s policies, which could be welcomed by equity markets given her stance on fiscal expansion.

"During the leadership race, Takaichi toned down her more radical proposals, including withdrawing her earlier suggestion to cut the consumption tax. However, if she were to revive such proposals in response to demands from major opposition parties, it could lead to higher interest rates, a weaker yen, and accelerated inflation - developments that may not help restore public trust.

"Overall, there is skepticism surrounding Takaichi’s ability to manage the administration effectively.

"On monetary policy, Takaichi is not seen as supportive of interest rate hikes, which could make it more difficult for the Bank of Japan to proceed with tightening. While rate hikes may not be ruled out entirely, the central bank could adopt a more cautious and gradual approach. Depending on inflation trends, the next rate hike may be delayed until early next year."

Mari Iwashita, Executive Rates Strategist, Nomura Securities

"(Bank of Japan) Governor (Kazuo) Ueda appeared to be in no rush to hike interest rates anyway. Takaichi's win will make it even more likely the BOJ will take a wait-and-see mode and hold off raising rates in October. Until the political dust settles and there is more clarity on the new administration's policy stance, there's little reason for the BOJ to rock the boat with a rate hike."

Naoya Hasegawa, Chief Bond Strategist, Okasan Securities, Tokyo

"The chance of the Bank of Japan's interest rate hike later this month has weakened. The market will initially react to the outcome of the LDP election by buying bonds with mid-term maturities and selling super-long dated bonds. So the curve will steepen.

"The market saw a more than 60% chance for the BOJ's rate hike to 0.75% until now, but that will fall to below 50% next week.

"The market’s expectations for the BOJ’s interest rate hike had risen lately as the market priced in Koizumi's win, and a hawkish message from BOJ board member (Asahi) Noguchi."

Toshinobu Chiba, Fund Manager, Simplex Asset Management, Tokyo

"This is really surprising. I think we'll see the yen depreciate and a twist steepening of the JGB yield curve. And we have to see what her policy details are."

Yuka Hayashi, Vice President, the Asia Group, Washington, D.C.

"Takaichi is a very experienced politician. She has had some experience working in the U.S. as well, a long-term observer of U.S.-Japan relations, so that's her strength.

"She said that she's confident that she could build a very strong personal relationship with President Trump. And the reason for that is her policy focuses on what she calls the 'Japan First' policy. And that kind of corresponds to President Trump's America First policy. She sees that sort of common thread there. On the other hand, she's a hardliner, very conservative when it comes to Japan's relationship with its Asian neighbours.

"She has had a very hawkish stance on World War II legacy issues. She has insisted on visiting the Yasukuni Shrine numerous times, knowing that would inflame Japan's relationship with its neighbours. So there is some concern that she could fuel tensions with the relationship with South Korea and China.

"This is a very challenging time for the LDP so I think she would probably try to focus on party unity and be very careful about taking excessively conservative hard-line stances in foreign policy."