Sanae Takaichi has ascended to leadership of Japan’s Liberal Democratic Party (LDP), positioning her as the nation’s next prime minister. Her election is a historic turning point in Japanese politics. She promises to choreograph a new macroeconomic playbook, combining historic revivalism with 21st century rulemaking. Takaichi has made bold statements about Japan’s financial direction, advocating for low interest rates and a reindustrialization agenda that emphasizes discipline and national pride.
Takaichi’s campaign resonated with voters as she openly criticized last year’s discussions surrounding tightening monetary policy by the Bank of Japan (BoJ), labeling them as “stupid.” This is indicative of her focus and commitment to creating an economic environment that centralizes the importance of accessible financing and fostering growth. Her approach hints at a new form of economic playbook, one that pushes for a more forceful effort to get the economy moving again.
Takaichi is serious about her economic agenda. She pledges to persist in her visits to the Yasukuni Shrine, a decision which might have the farthest reaching effects on Japan-China relations. The shrine continues to generate outrage due to its connection to Japan’s militaristic past. Her subsequent trips will almost certainly continue to elicit furious responses from the Chinese capital. This leadership quality might change the future of diplomatic relations in her region and further afield.
Takaichi’s leadership style and platform have led some to already compare her to former Prime Minister Shinzo Abe—though this too suggests Abe-era revivalism. Her uncritical love of Margaret Thatcher defines her political soul. Beyond the popularism, it is an excellent example of her belief in the interplay of strong governance and market principles. Takaichi has already made clear her vision for making Japan “work like horses” in a move to increase productivity and economic durability.
Under Takaichi’s administration, Japan will inherit a freshly negotiated trade pact with Washington that includes notable provisions such as a 15% cut in auto tariffs and a $550 billion investment framework from the United States. Internationally, these agreements would improve Japan’s economic status. Takaichi has a difficult task ahead of her in reconciling Japan’s need for economic domestic growth with the effects of U.S. monetary policy.
Her policies may set up conflicting expectations. Tokyo needs stimulus, but Washington is calling for patience on currency. This awful interplay of these factors leaves a very complicated and brutal economic environment. Unexpectedly, this might be bullish for risk assets and represent a turn in investor sentiment.
As Takaichi prepares to assume her duties, she is in a position to influence Japan’s future in profound ways. Under her leadership, we can expect to see a willingness to challenge the boundaries of conventional, discredited economic orthodoxy. Simultaneously, she hopes to forge a different image of Japan on the international front.