Foreign investors poured money into Japanese equities and futures at the fastest pace in over a decade following the historic election victory of Prime Minister Sanae Takaichi. Data released on Thursday by Japan Exchange Group showed that foreign investors were net buyers of 1.78 trillion yen (approximately $115 billion) worth of Japanese stocks and stock index futures in the week ending February 13. This marks the largest such inflow since November 2014.

Prime Minister Takaichi's victory has bolstered market expectations for political stability and increased government spending. Investors are betting that the super-majority secured by Takaichi's Liberal Democratic Party (LDP) in the House of Representatives will bring policy clarity and reduce the risk of worst-case fiscal scenarios. In the February 8 lower house election, the ruling coalition composed of the LDP and Nippon Ishin no Kai won a majority of seats. The LDP secured 316 seats, while Nippon Ishin no Kai obtained 36 seats, giving the LDP a two-thirds majority in the 465-seat chamber. This "super majority" will make it significantly easier for the Takaichi-led coalition to pass legislation.

This substantial capital inflow highlights the growing appeal of Japanese equities as global investors seek more stable returns and diversify their allocations away from the U.S. market. Year-to-date, Japan's broader Topix index has surged 13%, significantly outperforming the S&P 500 index, which has seen only marginal gains.

Russell Shor, a senior market strategist at the Johannesburg-based trading platform Tradu, commented, "If you're looking outside the U.S. right now, Japan is definitely one of the top choices. The political stability post-election is significant, and it's not just stability – the magnitude of Takaichi's victory is also crucial. This makes Japan highly attractive."

Frederic Neumann, Chief Asia Economist at HSBC Holdings, had previously stated, "The LDP's decisive election victory will provide strong momentum for the stock market." He noted that Prime Minister Takaichi's stronger mandate will aid in implementing structural reforms that could enhance productivity and corporate profits. "More importantly, a large ruling majority should also ensure fiscal spending remains relatively restrained, thereby reducing the risk of volatility in the bond market," Neumann added.

Market optimism surrounding Takaichi's expansive fiscal plans – which are expected to benefit sectors ranging from artificial intelligence to energy and shipbuilding – is a key driver. Additionally, a weaker yen providing a tailwind for exporters and persistent pressure from activist investors are also supporting the market. Meanwhile, concerns related to artificial intelligence and geopolitical risks have recently dimmed the appeal of U.S. equities. Russell Shor noted, "The equity risk premium in Japan is particularly attractive for international fund managers."