Sanae Takaichi to lead Japan as first woman PM, faces test on economy, foreign policy

Sanae Takaichi has made history as the first woman elected president of Japan’s ruling Liberal Democratic Party (LDP), a position that sets her on course to become the country’s prime minister. But analysts caution that her rise marks the beginning of difficult choices rather than a political breakthrough.

A close ally of late Prime Minister Shinzo Abe, Takaichi is expected to carry forward his brand of conservative nationalism and economic policy. In her first remarks, she vowed to “turn people’s anxieties into hope,” promising stability in a political landscape unsettled by the LDP’s recent electoral setbacks.

Economic doubts

Economists warn that Takaichi’s pledge to deepen Abenomics could weigh heavily on households, CNBC reported. The Bank of Japan ended negative interest rates in 2024 and remains wary of persistent inflation. But Takaichi has signalled resistance to rate hikes, favouring fiscal spending and a weak yen to boost exports.

“She won’t bring inflation down,” said William Pesek, author of Japanization: What the World Can Learn from Japan’s Lost Decades. “If she’s going to double down on Abenomics, that means a weaker yen, more government spending, and arguably higher inflation.”

Citi analysts expect the Nikkei 225 to push toward 47,000, while noting that valuations are already stretched, with the Topix at almost 16 times forward earnings. Sectors tied to defense, consumers and exports could benefit, but banks and real estate may lose out in a low-interest environment.

Global challenges

Analysts argue the LDP favoured Takaichi as a steady hand to manage relations with U.S. President Donald Trump, who has taken a hard line on trade. Tokyo has pledged $550 billion in investment, and stability in U.S.-Japan ties is seen as crucial to economic growth.

“She was probably the best option to face off with Trump at this very tense moment between the U.S. and the rest of the world,” Pesek told CNBC.

But Takaichi’s hawkish posture on China adds risk. She has long courted controversy with visits to the Yasukuni Shrine, which Beijing denounces, and is viewed as a staunch supporter of Taiwan. Taiwanese President Lai Ching-te praised her as a “staunch friend,” while Beijing has remained guarded.

Kei Okamura of Neuberger Berman noted that Takaichi will balance nationalism with pragmatism. “Her views on China and Korea are well known, but she also understands the need to maintain good relations with these countries and with the U.S., given their importance to Japan’s exports,” he said.

Governing hurdles

At home, Takaichi faces the reality of leading without a clear majority. The LDP’s losses in recent elections mean she must seek alliances with at least one opposition party, a compromise that could limit her room for bold reforms.

Research firm BMI said her focus will be coalition-building before policy delivery. “Her ability to govern will depend on how quickly she can strike a deal with opposition parties,” its analysts observed.

Despite the historic nature of her election, observers see continuity rather than radical change under Takaichi. For investors and allies, her leadership signals more of Abe’s mix of fiscal expansion, export-driven growth, and conservative diplomacy, tested now against inflation, fragile alliances, and a divided domestic political stage.