Key points:

• Yen plummets on Takaichi win
• Markets eye more spending
• Stocks soar to record high

Loose monetary policy might be staying. Lawmaker Sanae Takaichi is almost certainly going to become Japan’s next prime minister. The markets are reacting in a big, big way.

💴 Yen Gets Steamrolled, Dollar Rips Higher

• The USDJPY pair surged early Monday, smashing through the psychological ¥150 handle to reach ¥150.45 as traders were pricing in the almost-certain win of lawmaker Sanae Takaichi as the new prime minister.
• The yen tumbled nearly 2% against the dollar, marking its sharpest single-day drop since October last year, while also falling to a record low versus the euro. The greenback, meanwhile, found fresh fuel from widening yield differentials amid ongoing US political gridlock.
• Japanese government bond yields slid, with the two-year yield diving as markets dialed back expectations of a Bank of Japan rate hike this year. Traders now expect the first move to come deep into 2026 — if at all. But wait, there’s more.

📊 Stocks to the Moon, Bonds to the Basement

• The Nikkei 225 index NI225 ripped 4.75% to a new record close of 47,944.71, after touching 48,150 intraday. That’s its best day in almost two years, as equity investors cheered what’s effectively a green light for prolonged cheap money.
• The rally was broad-based, led by exporters like Toyota, Sony, and Mitsubishi Heavy — all set to benefit from a weaker yen that makes Japanese goods cheaper overseas.
• In contrast, bond yields fell across the curve, signaling that traders see the BOJ staying ultra-dovish under a Takaichi government.

👩🏻‍💼 Meet Takaichi: Tokyo’s New Stimulus Queen

• Sanae Takaichi, known for her nationalist rhetoric and unabashed support for fiscal expansion, is set to take the helm after winning the ruling Liberal Democratic Party leadership race. Among the five candidates, she was the most pro-stimulus — and investors noticed.
• Her economic agenda? A return to “Abenomics 2.0” — bigger public spending, aggressive industrial support, and cooperation with the BOJ to uphold easy financial conditions. In other words: keep that liquidity flowing.
• That stance has cratered market expectations for near-term tightening. Interest rate swaps now imply only a 41% chance of a hike by December, down from 70% before the election. Traders say the odds of intervention have risen faster than the odds of a rate increase.

📉 Policy Divergence and FX Swings

• With the Federal Reserve still holding rates above 4% and Japan near negative real yields, the yield gap is the size of the Pacific Ocean. As long as that persists, the dollar remains the “cleanest shirt in the dirty laundry.”
• Intervention risk, however, is creeping higher. Tokyo officials haven’t ruled out stepping in to slow the yen’s slide, though verbal warnings have so far fallen flat.
• Traders eye the next line in the sand, ¥151.00. Beyond that, markets could start testing the government’s resolve, unless Takaichi’s incoming cabinet signals coordination with the BOJ.

Source: Tradingview