Japan's political landscape has entered a period of stable governance under Prime Minister Sanae Takaichi, following the Liberal Democratic Party's (LDP) decisive victory in the House of Representatives election last Sunday, February 8th. The LDP secured an overwhelming majority, marking the start of a new political cycle. During Asian trading hours on Monday, the USD/JPY pair experienced volatility, initially rising 0.3% to hit 157.65, its highest level in over two weeks, before reversing gains. The pair was last trading near 156.80, down approximately 0.25%.
The ruling LDP, led by Prime Minister Takaichi, and its coalition partners achieved a landslide victory. The LDP alone won 316 seats, a record high, while the ruling coalition collectively secured 352 seats, granting it a two-thirds supermajority. This result removes significant legislative hurdles for Prime Minister Takaichi to advance her economic policy agenda. In stark contrast, the main opposition coalition, the Centrist Reform Alliance, suffered a major defeat, losing nearly half of its seats. The outcome aligned closely with pre-election media polls, indicating a clear public mandate.
A critical aspect of this victory is the attainment of an "absolute stable majority," exceeding the 310-seat threshold required for a two-thirds majority. This powerful majority grants the coalition the ability to override vetoes by the Upper House. This dominance in the Lower House suggests that government-proposed legislation will pass smoothly over the next three years, significantly enhancing administrative efficiency and policy certainty.
Prime Minister Takaichi's strategy of calling a "snap election" on January 23rd proved highly effective. Capitalizing on her initially high approval ratings, she moved swiftly to convert public support into a solid parliamentary power base. The strategy was clearly successful. Economist Jesper Koll noted, "Takaichi has now fully aligned the LDP and the technocrats with her agenda... The LDP is now beholden to her, and elite bureaucrats know she will be in power for at least two to three more years, so they have little choice but to tie their careers to her success." This indicates Takaichi has not only won the election but also consolidated her authority within the party.
Although her approval ratings saw a slight dip in the weeks before the election, Takaichi maintained a solid level of public support. Polling data showed that while only one poll in January registered support above 70% (down from three in December), six polls showed support in the 60% range, an increase from four the previous month. This relatively stable public support provided a crucial foundation for her decision to dissolve parliament and win the election.
Japan continues to face significant economic and geopolitical challenges. The country has endured inflation above the central bank's target for 45 consecutive months, with real wages persistently declining and the yen remaining weak. The latest inflation reading was 2.1%, while the full-year inflation rate reached 3.2%. Real wages fell year-on-year for the 11th consecutive month in 2025, and have declined annually since 2022. Entering 2026, the yen weakened further, with USD/JPY previously approaching the 160 level. While a weaker currency benefits exporters, it also exacerbates imported inflation pressures.
In response to rising living costs, Prime Minister Takaichi had previously introduced a $135 billion stimulus package to support households. A record-high budget of $78.3 trillion has also been drafted for the new fiscal year starting April 1st. Koll added, "Expect more state-led initiatives aimed at creating national champion companies. The government will use the $550 billion Japan-US investment pact to create a sense of urgency among hesitant CEOs. Japan's M&A boom will gain further momentum to achieve greater economies of scale and enhance reliable global competitiveness—all pursued in the name of bolstering national economic security."
With the LDP's strong majority and expected legislative control, the Takaichi administration is anticipated to enter a phase of strong policy momentum. Markets will closely watch for detailed legislative and policy plans concerning economic recovery, fiscal consolidation, energy security, and the crucial goal of achieving a virtuous cycle of wage growth and inflation. Takaichi's core economic policies are expected to continue the "Abenomics" path, centered on fiscal expansion. She has pledged to suspend the food consumption tax to ease public burdens and fund stimulus through bond issuance. Analysts generally believe the stable ruling base gives her more initiative in policy implementation but requires a careful balance between economic stimulus and fiscal sustainability.
Regarding policy outlook and market impact, most analysts expect the "Takaichi Trade" logic to persist: fiscal expansion themes may lead to a moderate rise in government bond yields and a continuation of the yen's weak trend, while equities could maintain relative strength with policy support. Meanwhile, the process of monetary policy normalization is expected to remain gradual to avoid significant market volatility.
As of 11:43 Beijing Time, USD/JPY was trading at 156.83/84.