A week ago, Japan stood on the edge of political uncertainty; today, it stands on much firmer ground as Prime Minister Sanae Takaichi has not merely survived her snap election gamble, she has emerged with a commanding super majority for the ruling Liberal Democratic Party ( LDP ) in the Lower House.

With 316 seats secured by the LDP alone, and 352 with coalition partner Ishin ( at the time of writing ), the result delivers the clear mandate she sought, and one markets had been tentatively pricing in, but not fully trusting in.

That caution evaporated quickly. Japanese equities surged in early trading, with the Nikkei jumping more than 5% to a fresh record above 57,000, its strongest single-day move in years. The rally reflected a sharp repricing of political risk and renewed confidence in policy continuity under a strengthened Takaichi administration.

Currency markets told a more complex story. The US dollar briefly pushed into the upper 157-yen range as the yen weakened on expectations of expansionary fiscal policy and heavier government borrowing.

The move underscored a familiar tension, while equity investors welcomed growth momentum, foreign exchange markets focused on Japan’s fiscal trajectory and its implications for inflation and rates.

The political optics extended well beyond Tokyo. US President Donald Trump publicly congratulated Takaichi on what he described as a “landslide victory”, praising her decision to call a snap election and reaffirming Washington’s support for a strong Japan.

Meanwhile, US Treasury secretary Scott Bessent reinforced that message, noting that Tokyo’s stability strengthens America’s strategic position in Asia. For investors, the symbolism mattered, Japan’s domestic mandate now comes with visible external backing.

The immediate reaction has therefore been decisive. Investors leaned back into what has become known as the “turbo-charged Takaichi trade”: stronger equities, a steeper Japanese government bond ( JGB ) curve and a weaker yen. The political risks that had crept into long-dated bonds during the campaign are now being reassessed. Stability, at least in the near term, has returned to Tokyo.

Fiscal, structural reforms

For financial markets, the significance of this result lies less in the headline victory and more in what it unlocks. A two-thirds majority in the lower house of parliament allows Takaichi to override any upper house resistance, pass contentious legislation and push through fiscal and structural reforms with limited obstruction. That power sharpens the focus on fiscal policy and its interaction with the Bank of Japan ( BoJ ).

Investors can now expect a more expansionary fiscal stance, including targeted tax relief, higher defence and technology spending, and continued investment in energy security and digital infrastructure.

Japan’s sovereign credit profile, Morningstar DBRS was quick to note, remains resilient, underpinned by its favourable debt structure and a stabilizing debt-to-GDP trajectory, even if deficits widen modestly.

The risk is not solvency, but volatility. JGB yields have already lifted in anticipation of increased issuance, and the yen remains sensitive to any sign that fiscal ambition could outpace monetary normalisation.

This places the BoJ in a tighter corridor. With short-term rates already at multi-decade highs, sustained yen weakness could force policymakers to consider an earlier or faster tightening path. For now, coordination between Japan’s ministry of finance and the central bank will be critical in managing quantitative tightening, bond supply and market expectations.

Beyond Japan

Outside Japan’s borders, the implications of the election are arguably more profound. A decisive LDP mandate reinforces Japan’s role as a financial anchor across Asia. Japanese banks and institutional investors remain among the largest providers of long-term capital into Southeast Asia, spanning infrastructure, manufacturing and, increasingly, sustainability-linked finance.

This matters in a region where competition for influence is growing. Takaichi’s firm strategic alignment with the United States, coupled with a pragmatic but guarded economic relationship with China, signals continuity rather than confrontation.

Japan is unlikely to decouple economically from China, but it will continue to diversify supply chains, restrict sensitive technologies and deepen ties with Southeast Asian partners wary of over-reliance on Beijing. For economies across Southeast Asia – among them, Vietnam, Indonesia, the Philippines and Thailand – a stable and assertive Japan could be widely viewed as a net positive.

Japanese foreign direct investment, portfolio flows and development finance provide an alternative pole of capital, governance standards and long-term funding. With China’s growth slowing and its outbound investment more selective, Tokyo’s renewed confidence may strengthen its appeal as a partner of choice.

Geopolitically, the super majority may also embolden Takaichi’s security agenda. Higher defence spending, closer coordination with Washington and Seoul and her controversial continued support for Taiwan could now be seen as carrying clearer electoral legitimacy.

Southeast Asian capitals navigating an increasingly delicate multipolar landscape may read this as Japan doubling down on its role as a balancing, stabilizing regional power.

In calling the snap election, Takaichi framed it as a test of trust in her economic strategy, her fiscal judgement and Japan’s place in Asia. That test has now been decisively answered.

With the gamble now paying off, earlier apprehension could be replaced by something more substantial, a renewed, market-backed assertion that Japan is ready to lead again, and not just domestically, but potentially across Asia’s financial landscape and its delicate regional power balance.