Yen tumbles below ¥150 to the dollar and the Nikkei 225 surges more than 4 % as election‑season speculation revives the market‑moving “Takaichi trade”, a fiscal‑stimulus‑driven rally reminiscent of Abenomics but forged in a starkly different macro‑environment.

The rally follows the unveiling of Prime Minister Sanae Takaichi’s ¥21.3 trillion stimulus package in October 2025, the largest single‑year outlay since the 1990s. The sheer scale of the spending – roughly 80 % larger than the biggest Abenomics‑era stimulus – has ignited optimism in equity markets while simultaneously prompting a sharp depreciation of the yen, which slipped below the ¥150/$ threshold for the first time since the early‑1990s bubble burst. The Nikkei 225 responded with a 4.3 % jump on 23 October, propelling the index to fresh record highs.

Takaichi’s approach deliberately echoes Shinzo Abe’s three‑arrow framework introduced in December 2012, yet it diverges on the third arrow. While Abe championed market‑led structural reforms – corporate governance, women’s workforce participation and deregulation – Takaichi proposes a form of state‑led capitalism, directing government resources into the commercialisation of research and development. The first two arrows – aggressive monetary easing and massive fiscal stimulus – have been revived, but the monetary stance is now contested. In July 2025, during the LDP leadership race, Takaichi publicly criticised the Bank of Japan’s plan to raise rates, signalling a preference for continued easing even as the BOJ had already begun normalising policy, with rates at 0.1 % in October 2025.

The macro‑economic backdrop also marks a departure from Abe’s era. Abenomics fought entrenched deflation, with consumer‑price inflation at –0.5 % YoY in 2013 and a target of 2 % that never fully materialised, while GDP grew at an average 1.2 % between 2013 and 2019. By contrast, the Takaichi trade operates amid stagflation: CPI is around 3 % in 2025, yet real GDP growth has stalled at roughly zero since 2021 and real wages have fallen 7 %. This dual pressure forces policymakers to balance inflation control against growth stimulus, a trade‑off Abe never faced.

Political dynamics further colour the episode. Abe enjoyed a solid LDP majority from 2012 to 2020, allowing relatively smooth implementation of his agenda. Takaichi, however, leads a minority coalition comprising the LDP, Komeito and several small parties, and must negotiate with opposition forces such as the Japan Innovation Party. Analysts therefore view the “Takaichi trade” as a short‑lived market phenomenon, likely to wane within a month as fiscal constraints and coalition bargaining take hold. Senior economist Kazuhiro Ueda warned that the yen‑weakening bias of the trade is temporary, underscoring the fragility of the rally.

Investors are therefore weighing the immediate upside of a massive fiscal injection against the longer‑term risks of a weakened currency and heightened debt burdens. The market’s current enthusiasm reflects a belief that the stimulus will revive corporate earnings and lift the equity market, but the underlying stagflation and political uncertainty suggest that the rally could be as fleeting as the policy window that enabled it.

Sources