Japan's stock market made history on January 13, 2026, with the Nikkei 225 index closing at an unprecedented 53,549.16, according to Asahi Shimbun. This dramatic surge—up 1,609.27 points from the previous Friday's close—was fueled by rumors swirling through Tokyo and beyond: Prime Minister Sanae Takaichi may be preparing to dissolve the Lower House and call a snap election as early as February. The mere possibility of this political shake-up sent investors into a frenzy, catapulting the Nikkei into the 53,000 range for the first time ever, as confirmed by Cryptopolitan and IG Markets Limited.
Market watchers barely had time to catch their breath. The Nikkei opened at 52,808.29, immediately surpassing its previous intraday record of 52,636.87 set just two months prior, and continued its climb throughout the day. By the end of the morning session, it stood at 53,540.60—up 3.08% from the previous close, Asahi Shimbun reported. The Topix Index, another key gauge, jumped 2.13%. Chipmakers led the charge: Advantest soared 8.99%, Tokyo Electron leapt 8.31%, and even tech giant SoftBank notched a nearly 5% gain, according to Cryptopolitan. Lasertec and Kawasaki Heavy Industries also posted impressive advances of 9% and 8%, respectively, as noted by IG Markets Limited.
What’s behind this remarkable rally? The so-called “Takaichi trade” is back in full force. Investors have been betting that Prime Minister Takaichi’s high approval ratings—hovering around 70%—and her reputation for “responsible and proactive fiscal spending” could spell big things for Japan’s economy if she secures a stronger parliamentary mandate. The ruling coalition, which includes the Liberal Democratic Party (LDP) and the Japan Innovation Party (Ishin), currently governs with the support of just a handful of independents. A snap election could deliver the kind of stability that both domestic and foreign investors crave, especially as Japanese equities now trade well above their 10-year average price-to-earnings ratio, IG Markets Limited explained.
But the optimism comes with a healthy dose of caution. Maki Sawada of Nomura Securities told Asahi Shimbun, “Expectations for a growth strategy leveraging the high approval ratings of the Takaichi administration are driving the rise in stock prices,” but she warned, “expectations have risen too high.” Sawada pointed out that strained Japan-China relations and the unpredictable results of a snap election could still throw the market into turmoil.
Meanwhile, the excitement in equities has been mirrored by notable moves in currency and bond markets. The yen tumbled to its weakest level in nearly a year, hitting 158.25 against the dollar on January 13 and briefly touching 158.91, its lowest in 18 months, according to IG Markets Limited. This sharp depreciation has been a double-edged sword: while it boosts profits for Japan’s export-heavy companies—Toyota Motor, for example, jumped 7% intraday—it also raises the cost of imported food and energy, stoking inflationary pressures at home. The Bank of Japan’s December rate hike to 0.75% hasn’t stemmed the yen’s slide, and many traders remain unconvinced that further hikes will be enough to reverse the trend, Cryptopolitan reported.
Bond traders, too, have been on edge. The yield on newly issued 10-year Japanese government bonds rose to 2.16%, the highest since February 1999, while the 20-year yield climbed to 3.14%, as noted by both Asahi Shimbun and IG Markets Limited. These moves reflect growing unease over the government’s fiscal trajectory. Takaichi’s proposed ¥135 billion stimulus plan and a record ¥122.3 trillion budget for fiscal 2026 have stoked fears of a debt deluge. Japan’s debt-to-GDP ratio, at 237% in 2024 according to the International Monetary Fund, is the highest among G10 nations. Debt servicing costs are projected to reach ¥31.3 trillion in fiscal 2026, up from ¥28.2 trillion the previous year.
In the midst of these market gyrations, Finance Minister Satsuki Katayama took her concerns to Washington. Meeting with U.S. Treasury Secretary Scott Bessent on January 12, Katayama didn’t mince words: “I expressed my concerns about the one-way weakening of the yen. Secretary Bessent shares those concerns,” she told reporters, as quoted by Cryptopolitan. Katayama emphasized that she retains a “free hand” to intervene in the currency market if the situation worsens.
Yet, despite these warnings and the specter of direct intervention, markets have yet to see any concrete action from Japanese authorities. The yen has repeatedly tested the 158 level since October, and the government last intervened when the currency hit 160 in 2024, deploying ¥3.2 trillion to support it, IG Markets Limited recalled. For now, verbal guidance and hints of intervention remain the tools of choice.
Beyond Japan, the Nikkei’s meteoric rise sent ripples through Asian markets. South Korea’s Kospi added 0.62%, Hong Kong’s Hang Seng Index gained 0.73%, and Australia’s ASX 200 climbed 0.56%. However, Shanghai’s Composite Index bucked the trend, falling 0.64%. Meanwhile, U.S. futures were in the red, with Dow, S&P 500, and Nasdaq 100 futures all slipping as investors awaited inflation data and bank earnings, Cryptopolitan reported.
Despite the euphoria, risks loom large. The LDP-Ishin coalition still lacks a formal Lower House majority, and any underperformance in the snap election could reignite political gridlock, a scenario that would almost certainly rattle markets. Delays in passing the budget by the April 1 deadline are another potential pitfall. As IG Markets Limited noted, “any election disappointment or policy missteps could rapidly reverse these flows given the limited valuation cushion at current levels.”
The Bank of Japan faces its own quandary. With inflation running above the 2% target but the economy still fragile, Governor Kazuo Ueda has opted for patience and a data-dependent approach. Yet, the lack of clear guidance on future rate hikes has left markets uneasy. The upcoming spring wage negotiations in March could prove decisive: strong wage growth would support policy normalization, while weak outcomes would justify continued caution.
For now, the market is riding high on a wave of optimism, but as Sawada of Nomura Securities cautioned, “An improvement in Japan-China relations is hard to foresee, and even if a snap election is called, the stock market could fluctuate depending on the Liberal Democratic Party’s campaign pledges and the election results.” The coming weeks promise plenty of drama—and plenty for investors to chew on.
Japan’s explosive market rally has electrified investors and put the world’s third-largest economy back in the global spotlight, but as the dust settles, all eyes remain fixed on Tokyo’s political chessboard and the fate of the yen.
