Takaichi and Financial Markets: Maintaining Confidence is Crucial for Stable Government

Editorial

16:11 JST, February 11, 2026

For Prime Minister Sanae Takaichi to maintain stable governance, it is crucial to sustain the confidence of financial markets. Given that Takaichi advocates “responsible and proactive public finances,” the government is urged to implement policies emphasizing “responsibility.”

Following the Liberal Democratic Party’s historic landslide victory in the House of Representatives election, the Nikkei Stock Average temporarily surged by over 3,000 points on Monday, the first trading day of the week. Tuesday’s closing reached 57,650 points, setting record highs for consecutive days.

The booming stock market likely reflects the high expectations for Takaichi’s economic policies.

After Takaichi took office in autumn last year, the yen weakened amid concerns over a worsening fiscal situation, and long-term interest rates also rose. However, following the lower house election, movements have been calmer in both the foreign exchange and bond markets.

Takaichi described a consumption tax cut as her “long-cherished goal,” but refrained from making similar statements during the election campaign. The markets appear to be taking this stance in stride.

Will the Takaichi administration maintain fiscal discipline in its policy management going forward? Financial markets are closely watching the fate of the consumption tax cut as a litmus test.

Takaichi has secured a political foundation that could be described as a “Takaichi-dominated” political landscape. The public wants her to tackle the mounting challenges and swiftly advance policies.

However, if market confidence in economic policy wavers, the depreciation of the yen and rising prices will accelerate. Public discontent will inevitably grow. Rising long-term interest rates would lead to higher mortgage rates, increasing the burden on households and negatively impacting corporate cash flow.

If Takaichi’s approval ratings decline, it will hinder swift policy implementation. The government should strive to communicate information carefully to avoid confusion in the markets.

Furthermore, market stability is also crucial for maintaining good relations with the United States.

U.S. President Donald Trump is wary of an increase in long-term U.S. interest rates ahead of the midterm elections because if Japan’s long-term interest rates rise and spread to the United States, it could potentially deal a blow to the American economy.

On Monday, Takaichi announced plans to discuss the tax reduction measure — her campaign pledge to reduce the consumption tax on food items to zero for a limited period of two years — at a cross-party national conference and to compile an interim summary before summer.

The cut is positioned as a temporary measure until the introduction of a “tax credit with cash benefits” that combines income tax cuts and cash payments. However, implementing a food tax cut would reduce tax revenue by ¥5 trillion annually. Finding alternative funding sources will not be easy.

In the first place, the consumption tax is a core source of funding for social security and should not be used for economic stimulus measures. The government is urged to flexibly adjust its course based on discussions in the national conference.

(From The Yomiuri Shimbun, Feb. 11, 2026)