Speculation about snap elections to the Japanese parliament has reignited the Takaichi trade. Investors are buying stocks and selling bonds and the yen in anticipation of fiscal stimulus. Let’s discuss this topic and make a trading plan for the Nikkei 225.
The article covers the following subjects:
Major Takeaways
- Japan will hold parliamentary elections.
- A landslide victory for the LDP will boost stocks.
- The Takaichi trade is driving stock indices higher.
- Long positions on the Nikkei 225 can be opened with targets of 55,100 and 58,000.
Monthly Fundamental Forecast for Nikkei 225
Three months after Sanae Takaichi became Japan’s first female prime minister, her honeymoon period with voters is still ongoing. The Liberal Democratic Party leader’s approval ratings remain above 70% and sometimes reach 80%. She has enough political influence to change everything. At the same time, rumors of a snap election have pushed the Nikkei 225 index to a new record high.
The news that the prime minister would not wait until June first appeared in the Yomiuri newspaper. Kyodo News then informed readers of the specific dates: parliament will be dissolved on January 23, and elections will be held on February 8 or 15. Japanese stocks tend to rise after the lower house is dissolved. If the LDP manages to achieve a resounding victory, investors can expect a six-month rally.
Chances of Early Elections to Japanese Parliament
Source: Bloomberg.
News about the upcoming elections has revived the Takaichi trade. The prime minister is focused on large-scale fiscal stimulus and ultra-loose monetary policy, which creates a tailwind for stock indices and a headwind for bonds and the yen. At the same time, the government’s discontent with a weakening yen suggests that it will not interfere with the central bank’s monetary tightening cycle.
The Liberal Democratic Party has a slim majority in parliament, with 233 of 465 seats, and is forced to rely on a coalition. Early elections will allow it to advance its agenda, which will boost the economy and keep the Nikkei 225 rallying.
Japanese stock indices are more attractive than their US counterparts, including in terms of the bond-to-stock ratio. This circumstance, as well as the uncertainty surrounding Donald Trump’s policies, led to a capital flight from the US to Asia. In 2025, non-residents purchased ¥5.4 trillion worth of Japanese stocks, which is 35 times more than in 2024.
Ratio of Stock Indices and Bonds
Source: Bloomberg.
Fiscal stimulus, ultra-loose monetary policy, the associated acceleration in economic growth, and a weakening yen that is favorable for exporters provide solid grounds for buying the Nikkei 225. Investors are not particularly concerned about a potential trade war between Beijing and Tokyo. China’s dissatisfaction is due, among other things, to the yen’s fall to its lowest level against the yuan since the 1990s, which undermines the cost competitiveness of Chinese exporters.
Monthly Nikkei 225 Trading Plan
The Takaichi trade and the Liberal Democratic Party’s victory in the Japanese lower house elections will allow the Nikkei 225 to continue its rally. In this connection, long positions formed on pullbacks in November can be kept open and increased periodically. The targets remain at 55,100 and 58,000.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of NI225 in real time mode
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