Japanese Stocks Rise as Weak Yen Fuels ‘Takaichi Trade’; BOJ Signals Tightening Bias

Jan 19
2 min read

Equities advanced while the yen slid to fresh lows as investors positioned for political change, even as Bank of Japan Governor Kazuo Ueda reaffirmed the path toward future rate hikes.

Japanese equities gained amid renewed yen weakness and speculation surrounding a potential early election, as investors embraced what traders have dubbed the “Takaichi trade” — a combination of rising stocks and a softer currency.

The yen fell beyond 159 per dollar, its weakest level since July 2024, while domestic shares outperformed as exporters benefited from currency depreciation and expectations of continued policy support.

Bank of Japan Governor Kazuo Ueda said the central bank’s monetary policy trajectory remains unchanged despite recent market volatility linked to political developments surrounding Prime Minister Sanae Takaichi.

Ueda said rate increases remain likely when economic conditions permit, reinforcing expectations that the BOJ could move again later this year.

Most economists continue to anticipate a July rate increase, with exchange-rate dynamics viewed as a key factor in the timing of any decision.

A prolonged weakening in the yen could accelerate policy tightening if imported inflation pressures intensify or currency volatility threatens financial stability.

Ueda added that wages and inflation are expected to continue rising gradually and that measured adjustments to accommodative policy would support price stability and longer-term economic growth.

The rally in equities alongside a weaker yen reflects investor expectations that a Takaichi-led government would prioritise growth-friendly fiscal measures while avoiding abrupt policy tightening.

Reports indicate the prime minister is preparing to dissolve the House of Representatives at the regular parliamentary session on Jan. 23, opening the door to an early general election that could be held as soon as Feb. 8.

The political timetable may complicate approval of Japan’s fiscal 2026 budget before the end of March, adding another layer of uncertainty for markets and policymakers.