Japan Stock Index Hits New Record on Hopes for General Election — 2nd Update

By Kosaku Narioka

Japan's benchmark stock index rose sharply to a closing high, driven by growing expectations that a potential general election next month could solidify Prime Minister Sanae Takaichi's political standing, allowing her to take bolder steps to boost the economy.

The Nikkei Stock Average closed 3.1% higher at an all-time high of 53549.16 on Tuesday.

Japanese daily Yomiuri reported late Friday, citing government sources, that Takaichi was considering dissolving the lower house later this month, which would likely lead to a general election in February. Japanese markets were closed Monday for a national holiday.

Credit Agricole economists said in a note that the ruling coalition was likely to win because of strong support for the Takaichi government, which was formed following a party vote in October. A general election by the summer was expected for the new government to win the public's trust, it said.

A win at the polls would allow the Takaichi government to pursue more aggressive fiscal policy and greater investment for growth as well as bolder security measures, Credit Agricole said.

Barclays Chief Japan Economist Naohiko Baba said stocks are likely to continue rising, led by the sectors that could benefit from more aggressive fiscal policy, such as defense, energy, semiconductors and artificial intelligence.

Still, Baba expects Takaichi will continue to allow the Bank of Japan's stance of gradual rate increases, which could slow economic growth, because she is greatly concerned about the yen's weakness.

Stocks have tended to rise in the past after the dissolution of the lower house through general elections, said Eiji Kinouchi, chief technical analyst at Daiwa Securities. "If there is a resounding victory, stocks are expected to rise for about half a year," he said in a note.

A snap election in Japan could mean steeper Japanese government bond yields, a weaker yen and strength in equities, said Masahiko Loo, senior fixed income strategist at State Street Investment Management.

Loo said this is "the path of least resistance for now" against a backdrop of the "Takaichi trade," referring to a strategy based on her apparent preference for aggressive economic stimulus and accommodative monetary policy, which could weigh on government bonds and weaken the yen.

Still, Loo said markets could be overreacting given Takaichi's political constraints.

Even if Takaichi's ruling Liberal Democratic Party wins a lower-house majority, its lack of control in the upper house means opposition support will still be required to pass legislation, Loo said.

The 10-year Japanese government bond yield rose 7 basis points to 2.160%, its highest level since February 1999. The yen weakened to its lowest level in a year and a half of 158.97 to the dollar on Tuesday, compared with 158.16 as of Monday 5 p.m. Eastern time.

Foreign-exchange intervention by Japanese authorities would become more likely if the yen depreciates further to the 162-165 levels, said BofA Global Research strategist Shusuke Yamada.

Auto, electronics and financial stocks led Tuesday's gains. Toyota Motor climbed 7.5%, Tokyo Electron advanced 8.2% and Mizuho Financial Group gained 5.4%.

--Ronnie Harui contributed to this article.

Write to Kosaku Narioka at kosaku.narioka@wsj.com

(END) Dow Jones Newswires

January 13, 2026 02:46 ET (07:46 GMT)