Realizing PM Takaichi’s “Resilient Japan”: Policy and Sector Implications

Prime Minister Takaichi is about to reshape the country under her vision of “resilient Japan.” Her strategy points to pro-growth policies with national security at the front.The new government will establish a growth strategy council. It will focus on developing technologies in strategic sectors such as AI and semiconductors, to lift economic potential growth. On top of this, the commitment to expand defense expenditure was reinforced during President Trump’s visit to Japan, which will solidify the US-Japan alliance. Japan decided to expand defense expenditure to 2% of GDP within FY2025, while expanding purchase of defense equipment from the US.In short term, the policy mix becomes expansionary. Takaichi’s preference towards a lax monetary policy will limit the room for BoJ to normalize which would keep the Yen weak. On the other hand, the new government plans to develop a fiscal stimulus package to fortify Japan against inflation, which is likely to include tax cuts on energy.Prime Minister Takaichi's agenda is both stimulus-fueled and security-centric. This dual focus is creating powerful tailwinds for Japanese equities, where the Nikkei 225 has already rallied over 3% post-election on the back of foreign inflows and positive corporate profit forecasts. This positive sentiment, however, builds upon pre-existing fundamentals. The recent stock market boom is not solely a political phenomenon, as it was already well supported by years of accommodative policy, crucial market reforms, and the fundamentally lower leverage of Japanese corporations. Against this favorable macroeconomic backdrop, several sectors are poised to benefit. Given Takaichi's specific policy priorities, our top picks are defense, energy, information technology, and banking.