Japan’s financial markets are drawing renewed global attention as equities post one of their strongest advances in decades.
In October 2025, the Nikkei 225 index recorded a monthly advance of 16.6%, marking its strongest rise in 35 years and pushing deeper into record territory.
The surge coincides with the election of Sanae Takaichi as Japan’s first female prime minister, which intensified observations on Japan’s markets and policy direction.
Foreign investors have responded decisively, as net purchases of Japanese cash equities reached about ¥5.4 trillion, roughly $35 billion, during 2025, according to the Tokyo Stock Exchange. During the year, equities in Japan ranked among the best-performing major markets in both local currency and US dollar terms.
Leadership as key economic factor
Ms. Takaichi assumed office after the Liberal Democratic Party lost its parliamentary majority in July 2025. She later formed an alliance with the Japan Innovation Party following a break with Komeito in October. While the alliance did not secure an outright majority, independent lawmakers supported her, providing 237 of 465 votes in the prime ministerial election.
The administration outlined key policy priorities aimed at easing inflation, strengthening energy security, and raising defense spending. Policy measures under consideration include the removal of the provisional gasoline tax, subsidies for electricity and gas fees, adjustments to income tax deductions, and a potential temporary consumption tax exemption on food and beverages for up to two years.
Japan also plans to restart nuclear power plants that were shut down after 2011 and accelerate the development of next-generation reactors and fusion technology. Defense spending is expected to reach 2% of gross domestic product (GDP), advancing earlier than the originally planned 2027 target.
Public support for the new government is strong, with approval ratings between 70% and 80%, among the highest in decades, according to J.P. Morgan. Economists say this level of political stability supports the execution of economic and market policies.
Ms. Takaichi’s economic stimulus measures include a ¥17.7-trillion package as part of a broader ¥21.3-trillion plan, prompting expectations that the Bank of Japan may raise its growth outlook.
Market indicators and investor confidence
The Tankan business conditions index for manufacturers rose to 15 in the final quarter of 2025, the highest reading since 2018. Small and medium manufacturers recorded the strongest gains, supported in part by lower US tariffs on Japanese goods, which were cut from 25% to 15%.
Exports to the United States rebounded in November, rising 8.8% from a year earlier after seven months of declines. Consumer confidence, meanwhile, reached its highest level since April 2025.
Japan’s labor market also remains favorable for both consumers and investors. Non-agricultural employment increased 0.9% from a year earlier in November, while the unemployment rate stayed at 2.6% for four consecutive months amid rising labor force participation.
Nominal contractual earnings grew 2.2% in November, up from 1.9% in September. Rengo, the largest labor union group, seeks a 5% wage increase in Spring 2026 negotiations, matching its request from the previous year. In 2025, average wage gains reached 5.25%.
According to the Ministry of Foreign Affairs, the government plans to train 2.3 million personnel to advance digitalization between fiscal years 2022 and 2026. Highly skilled foreign professionals are encouraged through preferential residency programs, including “J-Skip” and “J-Find.”
Photo by Fakhitah Shabirah