On Sunday, February 8th, the early elections for the Lower House. The outcome will determine not only who will govern in Tokyo, but also how safely Japan will be able to pursue its economic ambitions, of your digital ecosystem. e diplomatic At home and abroad. Polls currently show Prime Minister Takaichi's party (LDP) winning over 45% of the vote.
Prime Minister Sanae Takaichi, who has held the top post for just over three months, has set the election date on this day to make the most of the growing support by the voters and thus strengthen its coalition government. On the one hand, the more nationalist position have given her the highest approval ratings in the polls in the last ten years. On the other hand, she has aroused the anger of some Japanese for the increase in cost of life, and his long-dominant Liberal Democratic Party is being challenged by a steady exodus of young voters to other parties.
What has Takaichi put in his hat so far?
Takaichi has already anticipated in his program an increase in defense spending, connecting the security of Taiwan to that of Japan, infuriating the China. He presented the most great extraordinary budget since pandemic restrictions were eased. It has strengthened the ties to Donald Trump, who reiterated the strength of the alliance during a visit to Tokyo. He also gave priority to government investments in artificial intelligence, infrastructure and semiconductors for strengthen the industrial base of Japan and its economic weight in the long term.
Takaichi's proposal to the people is that eliminate the Japanese equivalent ofVAT on food products – currently at 8% – for two years, to reduce the cost of living. The initiative is expected to will cost approximately 5.000 trillion yen ($31,6 billion) per year
Ma on the markets the attention of the and to investors it is above all a difficult one game of balances: the actions close to historic highs, the yen in persistent weakness and bond yields continuously growing. At the root of this are concerns about like the prime minister will want finance the his spending plans and investment. A quarter of the government's annual spending is already allocated to debt service approximately230% of gross domestic product, the largest in developed countries. Some analysts say a landslide victory for the LDP could ultimately prove positive for government bonds, as it would eliminate Takaichi's need to negotiate with opposition parties, which are pushing for even deeper tax cuts and broader fiscal spending.
On Friday, the Tokyo Stock Exchange index Nikkei closed at +0,81% at 54.253,68 points. The yen remained virtually unchanged at 156,98 per dollar.
Yen weakness against the dollar under Fed spotlight
The change dollar-yen has returned to the spotlight this week, hitting a 15-day high and climbing towards the mid-156-157 range. Last weekend Takaichi highlighted the advantages of a weaker currency which can represent a great opportunity for exporting industries and provide a buffer to theautomotive industry in the face of US tariffs. The prime minister further explained that while a weak yen can lead to higher import prices, it can also stimulate domestic investment, exports and foreign income.
But the comments have reawakened hedge funds' attention this week to the yen's weakness, reports BloombergAnalysts expect higher levels for the USD/JPY if Takaichi wins big, as noted by Antony Foster, head of G-10 spot trading at Nomura International Plc in London.
The yen is steadily dropped after Takaichi secured the leadership of the Liberal Democratic Party in October, touching il 18-month low against the dollar last month. The trend reversed sharply after an exchange rate check. dollar-yen by the Federal Reserve Bank of New York on January 23, reinforced by statements from President Donald Trump days later. The pressure on the currency, however, it resumed after the Treasury Secretary Scott Bessent reiterated its support for a strong dollar policy and Kevin Warsh he has been named the next chairman of the Federal Reserve.
The bond market is wondering how the prime minister will finance public spending.
The Prime Minister's plans cut taxes and increase public spending have raised doubts about the financial health of one of the most indebted governments in the world and the and to investors have become reluctant to hold government bonds in the uncertainty of what else might be released. In the operations rooms everyone remembers perfectly the panic which suddenly ignited on the bond market in mid-January, with yields on some bonds rising to historic highs. Japan had already received a lukewarm demand forauction of 20-year government bonds a few days before, but then the concerns exploded. The yields of the 30- and 40-year government bonds both rose by more than 25 basis points. The Japanese government bond 40 years (JGB), first issued in 2007, reached a new low for the first time ever. yield above 4%. Even the credit market Japanese government bonds have been affected by the crisis, with average yields on corporate bonds high quality on the rise.
Will there be a clash with the Bank of Japan?
Marching straight through his program, Takaichi could find himself on a collision course with the Bank of Japan regarding the pace of increases in interest rates, if he manages to prioritize economic growth over rising living costs. If Takaichi wins, he will have the power to replace the members of the board of directors of the BOJ, whose mandate expires this year. As early as 2024, he stated that it would be "foolish" for the Bank of Japan to raise interest rates until the economy had fully emerged from decades of deflation, though he has since toned down those remarks.
What are we voting for? Here are the parties in pole position.
The elections are to elect the 465 members of the House of Representatives, the lower house of the Japanese parliament, known as the DietIt is the more powerful of the two parliamentary chambers, with absolute power to approve budgets and elect the prime minister. Of the 465 seats, 289 are constituencies. single-member constituencies, where the candidate who gets the most votes in a given district wins. The remaining 176 seats are assigned using the system proportional.
Since its founding in 1955, the Liberal Democratic Party (LDP) has led governing coalitions in one form or another, with the exception of two brief stints. This record has cemented its reputation as Japan's natural governing party and the guardian of a bygone era of rapid economic growth. Many younger voters, however, consider the LDP a slow-moving party, dominated by older politicians. Many blame it for Japan's high public debt and stagnant wages, as well as a pension system they expect to inherit in a diminished form.
The Japan Innovation Party (JIP), also known as Ishin, is an Osaka-based party that recently became a formal ally of the LDP. This partnership gives the ruling coalition a more explicitly right-wing identity in terms of advocacy.
The main strength of opposition It is the Constitutional Democratic Party (CDP), a center-left party led by former Prime Minister Yoshihiko Noda. The CDP has opposed nuclear power and the LDP's proposed changes to Japan's pacifist constitution. It has also supported a temporary reduction in the sales tax on food products to help families cope with inflation. Comeito It is a centrist, welfare-oriented party known for its support for low-income families, its relatively pro-China stance, and its opposition to constitutional changes. The CDP and Komeito have formed a new party for the elections, called the Centrist Reform Alliance.
And then there's the Democratic Party for the People, founded in 2018, which quickly gained ground in recent elections by focusing on issues that directly affect workers, including inflation and net pay. Its leader, Yuichiro Tamaki , a charismatic former finance ministry official, briefly emerged in 2025 as a potential candidate for prime minister, seen as capable of uniting opposition parties.
