Japan is facing a major change after the Conservatives won two out of three seats in parliament.
The Liberal Democratic Party of Japan’s decisive election result in early February has created renewed confidence in policymakers after years of leadership and macroeconomic pressure. A major victory for Prime Minister Sanae Takaichi could bring stability to what could be a major crossroads in Japan.
Speaking to attendees at the Japan Security Summit at London’s Mansion House a week after the election, Finance Minister Satsuki Katayama linked a number of indicators – including rebounding GDP growth, rising wages for the third year in a row, the Nikkei 225’s 2025 close above 50,000, and record investment growth to explain the transition from austerity to to strong investment that creates a “virtuous cycle of capital that supports economic growth.”
Although GDP has improved only slightly (0.1% on a quarter-on-quarter basis and year-on-year basis in Q4 2025, which is not expected) and real wage growth remains negative as inflation exceeds inflation, the importance of this intersection lies below the headline numbers rather than the strength implied by the renewed political stability.
“Japan is back,” said Hiroshi Nakaso, chairman of FinCity.Tokyo. “We have seen CPI inflation above target for 45 months in a row, leaving inflation at the bottom.”
After many false starts over the past two decades, Nakaso believes that this change is in order and insists that these developments support real macroeconomic change. As deputy governor of the Bank of Japan (2013–2018), he helped guide policy and market operations during a time of great change, so he is perhaps uniquely placed to make that assessment.
Administrative changes are central to that claim. In a market that has long been criticized for lax regulations and ongoing fundraising, 92% of companies listed on Prime Market now fully disclose marks, marking a tangible change. This indicates that exchange rate changes and policy pressures have succeeded in pushing boards to address equity returns and shareholder rights.
Japan’s next chapter is also developing against a volatile global backdrop, amid US trade tensions and currency volatility. In this situation, Nakaso expects that global investors “will continue to diversify their portfolios away from the US dollar and into other currencies, including the yen, and other assets” – even if the dollar’s rise is unlikely to be lifted anytime soon.
A February stock briefing from Goldman Sachs provides more context. The bank says greater cooperation between Tokyo and Washington, amid concerns about China’s dominance of key supply chains, could provide a lead. “The push for industrial renewal could create meaningful opportunities for Japanese companies in sub-sectors such as industrial robotics and factory automation,” the note said.
Echoing policymakers’ optimism about improving domestic volatility, Goldman highlighted a “virtuous cycle” poised to lift stocks related to domestic demand. The bank cited rising wages and stable price growth as key trends.
Japan has experienced false dawns before, but with political realignment, improved economic indicators, and structural reforms progressing in tandem, the country’s policymakers hope to turn signs of recovery into sustained growth.
