Tokyo’s benchmark Nikkei 225 climbed 2.1% to 38,650, while Japanese government bond yields surged as investors priced in a potential Sanae Takaichi-led administration, signaling a shift toward more aggressive fiscal reform and tighter monetary policy.
- Nikkei 225 rose 2.1% to 38,650 on January 12, 2026
- 10-year JGB yield increased by 14 basis points to 1.28%
- 30-year JGB yield jumped 18 basis points amid long-term policy concerns
- Yen strengthened to 145.3 per dollar, up 1.6% from prior close
- Financials and technology sectors led gains, with sector up 3.8%
- Market reaction reflects expectations of fiscal reform under Sanae Takaichi
Japanese equities rallied sharply on January 12, 2026, as rising expectations of Sanae Takaichi’s victory in the upcoming leadership contest prompted a broad-based sell-off in government bonds. The Nikkei 225 Index gained 2.1%, closing at 38,650, led by gains in financials and technology stocks, with Mitsubishi UFJ Financial Group and Sony Corp. rising over 3%. The benchmark 10-year Japanese government bond (JGB) yield jumped 14 basis points to 1.28%, its highest level in nearly 18 months, reflecting growing anticipation of policy shifts under a Takaichi administration. Analysts note that Takaichi’s pro-reform platform—advocating for higher defense spending, structural tax adjustments, and a more independent Bank of Japan—has sparked investor confidence in a potential economic reboot. The yen strengthened to 145.3 per dollar, up 1.6% from the prior session, as capital flows shifted toward higher-yielding assets. The move underscores a growing market view that her leadership could accelerate fiscal normalization, even as the Bank of Japan maintains its current stance on interest rates. The reaction was especially pronounced in fixed income markets, where the 30-year JGB yield rose by 18 basis points, signaling long-term concerns about future debt sustainability and policy divergence. Financial sector stocks, including major insurers and regional banks, led the rally, with a sector-wide gain of 3.8%, as investors anticipate improved profitability under a reformist government. Market participants are now closely monitoring political developments ahead of the January 24 leadership vote, with asset managers adjusting portfolios to reflect higher risk appetite. The shift in sentiment highlights the outsized influence of political uncertainty on Japan’s capital markets, particularly in an environment where monetary policy has remained exceptionally accommodative for over a decade.