David McNay, CFA
Alex Nae, M.Sc
- Prime Minister Takaichi leveraged her high approval ratings to steer her Liberal Democratic Party (LDP) to a supermajority in the Lower House – the first single party supermajority in 40 years.
- A supermajority isn’t just a superlative – it provides the PM the ability to override the Upper House, reducing political friction. This increases the probability of her record breaking ¥122.3 trillion FY 2026 budget passing undiluted, and potentially sets the stage for further fiscal stimulus.
- Takaichi is philosophically aligned to former PM Abe, but the economy now is markedly different from the time of Abenomics. Fiscal expansion now is set to operate against monetary normalisation.
- For equities, corporate governance reform and sustained fiscal support across Japan’s key industries may act as a tailwind.
What happened?
On 23rd January Japan’s PM, Sanae Takaichi triggered a snap general election aiming to leverage her high approval ratings to increase the LDP–Ishin (Japan Innovation Party) coalition’s thin majority. Betting markets anticipated a victory, but not the landslide by which Takaichi won.
The LDP won 316 of 465 seats, taking the coalition total to 352 and giving Takaichi a supermajority, the first held by a single party in 40years, and the largest electoral share in Japan’s postwar history.
Over 2-week[note1] post election, the FTSE Japan index gained 3.79% in USD terms, while the 10Y bond yield lowered to around 2.08%, (from 2.24% prior to election results), and the Yen strengthened by 0.84% against USD. [note2]
Chart 1 – FTSE Japan and Industry Performance Post Election (6–24, February 2026)
What does having a supermajority mean?
A supermajority in Japan is more than a superlative – it provides two tangible benefits.
- Right of veto over the Upper House, which the coalition does not control. For a bill to become law it must pass in both houses of the Diet. A supermajority allows Takaichi to override[note3] Upper House rejections, reducing the gap between policy intent and execution by reducing political friction.
- Initiate constitutional change. From a markets perspective this is mostly ceremonial – except with regards to defence which is politically salient.
What might she do with it?
Aggressive fiscal expansion without dilution
The FY 2026 draft budget submitted to the Diet[note4] is a record ¥122.3 trillion, but is yet to be voted on. A supermajority reduces the risk of Upper House obstruction and minimizes the risk of dilution; Takaichi aims for the budget to be passed by 31st March, the end of the Japanese fiscal year.
More significant may be what comes next. Limited legislative friction provides scope to increase fiscal support through supplementary budgets – potentially expanding or extending support for AI, technology, reopening nuclear powerplants, and other strategic industries. It is feasible we may see multi-year industrial policy commitments, a rarity in Japan’s typically consensus driven politics.
Constitutional amendments around defence
Japan is now targeting a spend of 2% of GDP on defence. However, Takaichi has stated her intention to amend Article 9 of the constitution to specify the role of the Self Defence Force (SDF). This still requires a two-thirds approval in both houses of the Diet, and a national referendum; so whilst far from a done deal the intent is an important signal.
Takaichi has taken a hawkish stance around China, particularly regarding Taiwan. This may imply closer cooperation with the US. Following trade and security policy discussions with President Trump in October there was an agreement to streamline [note5] Foreign Military Sales (FMS) procurement between Japan and the US.
How has this changed our analysis?
Summarising the Spotlight on Japan from our Global Equity Insights report:
Corporate governance reform isn’t new, but a confluence of factors may hit in 2026 to unlock shareholder value. Takaichi is pushing huge fiscal stimulus supporting strategic industries. However, unlike during Abenomics, monetary and fiscal policy are working against each other.
In short, not much changes. Takaichi having a supermajority just turns up the dial. The probability of the record FY 2026 budget passing undiluted has increased, as has the probability of supplementary fiscal spending.
Comparisons to Abenomics are natural. Takaichi is philosophically aligned to her former mentor, but the macro backdrop Takaichi inherits is markedly different. Fiscal spending requires financing and Japan’s debt-to-GDP is already 232% (Q4-2025). During Abenomics the Bank of Japan (BoJ) and the government were aligned, leading to the Abenomics trade [note6]. Now there is no Yield Curve Control (YCC) flattening the curve and minimizing debt service costs; markets are free to price term premia and 10Y JGB yields have risen to c. 2.08% in February, incorporating inflation and fiscal expectations.
Table 1 – Understanding policy context in different regimes
| ARROW | ABE | TAKACHI |
| BOLD MONETARY EASING | Ultra easy. QQE [note7] + YCC suppressed long yields. JPY intentionally weak. BoJ aligned with Abe’s agenda. |
Normalisation. No YCC; steeper curve with entrenched inflation. Independent BoJ is tightening monetary policy which may work against expansionary fiscal policy. |
| FLEXIBLE FISCAL POLICY | Large coordinated stimulus. Aimed to reflate economy; mildly JPY negative but manageable because yields were capped. | Expansionary policy and supermajority removes legislative friction. But constraint has shifted – based on bond market tolerance, not BoJ yield control, that determines how much fiscal space exists. |
| STRUCTURAL REFORM | Corporate governance reform and GPIF shift from JGBs toward equity→ ROE uplift, equity inflows. | Governance reform continues. Emphasis has shifted toward industrial policy, defence, and technological sovereignty. |
What has changed in our research is the relative importance of corporate governance reform and fiscal expansion. We noted Takaichi is a catalyst in governance reform not the primary driver; with her clear mandate from the electorate the relative importance shifts towards her fiscal and geopolitical agenda.
Fiscal spending should benefit companies in strategic industries [note8], which may provide a tailwind to broader equities. However, the case now is more nuanced than during Abenomics and investors will need to closely monitor FX and bond markets to gauge the market’s tolerance for Takaichinomics.
footnotes
[1] Sustainable investment asset owner survey 2023 | Back to Note 1
[2] Solving the Scope 3 conundrum (lseg.com) | Back to Note 2
[3] Results of the 2021 Climate Biennial Exploratory Scenario (CBES) | Bank of England | Back to Note 3
[4] Investing in the green economy 2023 - entering the next phase of growth (lseg.com) | Back to Note 4
[5] Mobilising capital for a sustainable global economy (lseg.com) | Back to Note 5
[6] IFRS - Global investor support for the launch of the IFRS Sustainability Disclosure Standards | Back to Note 6
[7] IFRS - IFRS Foundation and EFRAG publish interoperability guidance | Back to Note 7
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