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Japan One to Watch After Historic Election

Vikram Rai, Senior Economist | 416-923-1692

Date Published: February 9, 2026

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Japan One to Watch After Historic Election

  • Prime Minister Takaichi’s Liberal Democratic Party (LDP) scored a landslide victory yesterday, winning a two-thirds supermajority in the lower house.
  • The LDP now holds 316 out of 465 seats, up from 196 before the election; this is the first time they've achieved the two-thirds threshold without coalition partners.
  • The LDP can now pass legislation quickly in the lower house and override the upper house with a two-thirds vote, eliminating the need for compromise with opposition parties.
  • Equity markets responded favorably to the news, closing up around 4% today, as investors focused on growth-enhancing aspects of the LDP's platform.  These include a push to deregulate as well as boost investment in a number of critical sectors such as AI, semiconductors and defense.  
  • The immediate reaction of the yen and bond yields was relatively muted, suggesting the outcome was largely priced in after several weeks of volatility.  The yen traded in the 156-158 range – close to its recent low of 159, while yields continued to hover near historic highs.

What Comes Next

  • We expect to see previously proposed measures to offer inflation relief in the FY 2026 budget this spring, such as a higher tax-free income threshold, expanded deductions, and investment incentives. We also expect the Prime Minister to follow through on increased defense spending in 2026.  
  • The biggest major change to watch for is how the government will handle its landmark promise to suspend the sales tax on food; they have said they will establish a cross-party council to examine the idea, delivering an interim report in the summer, and that they will not fund this promise with additional debt. The new government is going to need some time to dial in its plans and promises while assuring investors that it is being fiscally responsible. For this reason, we do not expect to see this implemented until next year. 

Disclaimer

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