In its surprise election of Sanae Takaichi, Japan’s long-governing Liberal Democratic Party chose a leader who promises a blend of expansionary policies to help revive the nation’s stagnant economy.
Ms. Takaichi, who is on track to become prime minister later this month after her win on Saturday, is an acolyte of Shinzo Abe, Japan’s longest serving prime minister, who was assassinated in 2022. She has long embraced the view that Japan should return to so-called Abenomics, a program that for nearly a decade heralded deep-pocketed government spending coupled with aggressive monetary easing.
On Monday, speculation that Ms. Takaichi would implement a form of “neo-Abenomics,” including by keeping interest rates low, prompted a spasm of volatility in Japanese markets. The yen weakened sharply against the dollar, at one point falling past 150 yen to the dollar, from 147 on Friday, and stocks surged.
Though Ms. Takaichi has softened her messaging significantly in recent days, her past comments, including those from a previous bid she made to become party leader, have distinguished her from Japan’s more recent leaders. They, along with her campaign rivals, largely backed a pivot away from the rock-bottom interest rates and expansive government spending policies that had added to Japan’s massive national debt.
Years of ultralow interest rates have meant that many investments in Japan offered smaller returns than other countries, like the United States. That, in turn, has caused investors to sell yen to buy higher-paying foreign assets, flooding the market with yen and driving the currency’s price down.
Also on Monday, Japan’s benchmark Nikkei 225 stock index rose nearly 5 percent. Investors bet that a weaker yen, which boosts the competitiveness of Japanese products overseas, would be a boon for big exporters like Toyota Motor.
Analysts said one factor driving markets on Monday was Ms. Takaichi’s defeat of Japan’s agriculture minister, Shinjiro Koizumi, who was considered a proponent of curtailing government spending.
Government spending and tax-cut plans promoted by Ms. Takaichi are expected to bolster the economy in the short term. Ms. Takaichi has said she would endorse an increase in state spending as central to a growth plan designed to achieve a virtuous cycle of rising incomes, higher consumption, and investment.
She cited artificial intelligence and semiconductors as key arenas for government-led initiatives. A defense hawk, Ms. Takaichi has also indicated support for raising Japan’s military spending.
Among the market’s biggest stock gainers on Monday were SoftBank Group and other A.I.-related companies, alongside semiconductor equipment supplier Tokyo Electron. Defense stocks, including Mitsubishi Heavy Industries and IHI, also posted significant advances.
Ms. Takaichi’s comments have also clashed with recent messaging from the Bank of Japan. At one point last year, she said that its rate hikes were “stupid.”
Its governor, Kazuo Ueda, has said that the central bank would continue to gradually raise interest rates. Japan’s policy rate remains at just 0.5 percent, despite inflation that has exceeded the bank’s 2 percent target for well over three years — and dragged on private spending.
There had been growing speculation that the Bank of Japan might raise interest rates at its next policy meeting, set for the end of this month. With Ms. Takaichi’s election, market participants now see that as less likely.
The central bank will probably “wait and see” how Ms. Takaichi’s policymaking develops, said Takahide Kiuchi, the executive economist at Nomura Research Institute. “At this point, it is highly likely that the Bank of Japan will raise interest rates in December,” rather than sooner, he said.
During her campaign for the party leadership, Ms. Takaichi softened her tone on interest rates, acknowledging that the central bank was responsible for monetary policy. At the same time, she said on Saturday after her win, the government and the Bank of Japan should move in “lock step.”
Ms. Takaichi also said on Saturday that she would not try to renegotiate the trade deal that the current administration reached with President Trump, despite having said during the campaign that she was interested in potentially doing so.
River Akira Davis covers Japan for The Times, including its economy and businesses, and is based in Tokyo.
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