Why a Snap Election Is a Gamble for Japan’s Leader

Summary

Japan is heading into a snap election on February 8, called by Prime Minister Takeuchi after a string of election setbacks for the ruling LDP. Takeuchi aims to capitalize on high public support to increase her majority and push through higher defense spending and a large supplemental budget. Markets are reacting with a wavering yen and rising government bond yields, while Japanese stocks have outperformed on the so-called Takeuchi trade.

• Japan calls snap election for February 8.
• Prime Minister Takeuchi seeks a stronger mandate.
• High approval ratings support the ruling party.
• Inflation and weak yen pressure living standards.
• LDP-Komeito alliance fracture adds uncertainty.
• Higher defense spending and supplemental budget at stake.
• Markets see yen waver and JGB yields rise.
• Japanese stocks outperform on the Takeuchi trade.