A strong showing in Sunday's election wou
ld solidify Takaichi's grip on her party and give a mandate for her expansionary fiscal policy, which could heighten concerns about Japan's finances and push bond yields higher.
The Reuters Inside Track newsletter is your essential guide to the biggest events in global sport. Sign up here.
"Implementing expansionary fiscal policy at a time the economy is at near full employment would heighten inflationary pressure" and weaken the yen, said Ryutaro Kono, chief Japan economist at BNP Paribas.
"The Bank of Japan may be forced to accelerate the pace of interest rate hikes to combat the weak yen and inflationary pressures from expansionary fiscal policy," he said.
Takaichi's Liberal Democratic Party is likely to well exceed a majority of 233 seats out of 465 seats up for grabs in the lower house, according to Asahi's poll released on Sunday. That would be an increase from 198 seats now.
Advertisement · Scroll to continue
Together with LDP's coalition partner, the Japan Innovation Party or Ishin, the ruling alliance will likely reach 300 seats, the poll showed.
The largest opposition party, the Centrist Reform Alliance, is struggling and could lose half its 167 seats, the Asahi said.
Super-long Japanese government bond yields, which are sensitive to fiscal risks, rose on Monday as investors priced in the chance Takaichi will push through her "proactive" fiscal policy focused on bigger spending and tax cuts.
The yen wobbled after Takaichi's weekend comments in which she talked up the benefits of a weaker currency were seen as condoning its declines and running counter to efforts by Japanese authorities to prop it up.
"People say the weak yen is bad right now, but for export industries, it's a major opportunity," Takaichi said on Saturday, adding that the currency's decline would boost the value of Japan's huge foreign reserves.
A government spokesperson said on Monday Takaichi was not highlighting the benefits of a weak yen, and instead stressing the need to create an economic structure resilient to currency fluctuations.
A weak yen has been a source of headache for Japanese policymakers as it pushes up import costs and broader inflation.
Takaichi's ruling coalition currently holds a slim majority in the powerful lower house but has a minority in the upper house. The premier dissolved parliament last month and called a snap election on February 8 seeking a mandate for her push to reflate the economy with expansionary fiscal policy.
Japan suffered a broad market rout last month after Takaichi pledged to suspend an 8% levy on food sales for two years, reviving investor concerns about fiscal discipline in a country with public debt more than twice the size of its economy.
Most parties have also called for a suspension or a cut to the consumption tax to cushion the blow to households from rising living costs.
Some analysts say a strong LDP win could actually prevent Japan from resorting to extreme tax cuts or spending plans proposed by some opposition parties.
The LDP remains vague on how soon the tax suspension could be put in place, saying only that the timing should be decided in a meeting of ruling and opposition parties.
In its campaign pledge, the LDP clearly commits to reducing Japan's debt-to-GDP ratio, and pursuing expenditure and revenue reforms, said Takeshi Yamaguchi, chief Japan economist at Morgan Stanley MUFG Securities.
"Our view that excessive concern over Japan's fiscal position is unnecessary remains unchanged," he said.
Japan election becomes high-stakes gamble for Takaichi as personal popularity faces tougher opposition
As Japan heads to the polls on Feb. 8, voters are weighing familiar concerns such as the cost of living, wages and the weak yen as they cast ballots in the Lower House election.
Beyond the economy, however, the vote is also shaping up as a test of Prime Minister Sanae Takaichi herself, with analysts saying the fiercely conservative leader has effectively turned the election into a referendum on her leadership.
“She’s trying to make it as a referendum on whether the people accept [her] as a prime minister or not,” said Kazuto Suzuki, director at the Institute of Geoeconomics, a Tokyo-based think tank.
Takaichi has made little effort to downplay the personal stakes. On Jan. 19, she said she was “putting my future as prime minister on this election” and asked voters to decide whether they could entrust the management of the country to her.
The strategy reflects Takaichi’s high approval ratings, which until recently had stood above 70%. The prime minister is seeking to translate that personal popularity into votes for the ruling Liberal Democratic Party, whose own approval remains far weaker.
″[Takaichi is] betting on her high levels of public approval and fragmentation among the opposition parties to carry the day,” said Mireya Solís, director of the Center for Asia Policy Studies at the Brookings Institution.
Takaichi currently leads an untested coalition of the LDP and the Japan Innovation Party, following the end of a 26-year partnership with Komeito in October.
While her personal ratings remain strong, support for the LDP itself lags at just under 30%, underscoring the gap between leader and party.
Jesper Koll, expert director at Tokyo-based financial services firm Monex Group, told CNBC in December that Takaichi was an “inspiration” to both older voters and, in particular, younger Japanese.
Her personal appeal, rather than her economic policies, may prove decisive, Koll said, potentially driving a landslide victory.
“Takaichi is the living example of a self-made woman rising to the top against all the odds — self-made, a normal working-class family background, neither money nor Brahman,” Koll said. “But hard work, dedication, passion, and willingness to do what is right.”
Others cautioned against framing the election as a straightforward endorsement of the prime minister.
Kristi Govella, an associate professor at the University of Oxford, said it may be “difficult” to frame the vote as a referendum on Takaichi, given her relatively short time in office.
“If the LDP manages to gain a clear majority in this election, it will be entirely attributable to
Takaichi’s personal popularity—little else has changed since July when the LDP was drubbed at the polls,” said Govella, who is also the Japan Chair at the Center for Strategic and International Studies.
The LDP’s electoral setbacks occurred under former Prime Minister Shigeru Ishiba, who called a snap election in 2024 after defeating Takaichi in the party leadership race.
The party lost its Lower House majority then. Ishiba later resigned in September 2025 after the LDP also lost control of the Upper House in July.
Economic pressures remain a backdrop for voters. Japan has endured inflation above the Bank of Japan’s target for 45 consecutive months, declining real wages and persistent yen weakness.
The most recent inflation reading stood at 2.1%, while full-year inflation reached 3.2%. Real wages fell for 11 consecutive months year-on-year in 2025, and on a yearly basis, real wages have fallen every year since 2022.
A spike in rice prices in mid-2025 also weighed on household sentiment and contributed to the LDP’s electoral struggles.
The yen weakened further at the start of 2026, briefly approaching the 160 level against the U.S. dollar. While a weaker currency benefits exporters, it has also amplified imported inflation.
Suzuki from the Institute of Geoeconomics said while the cost of living is a major issue, voters do not appear to be directly linking cost-of-living pressures to Takaichi’s policies.
″[Voters] are concerned about inflation, but they seem to be discounting that... I think that they’re fine for the most part with Ms Takaichi’s press to be expansionary,” said Ross Schaap, head of research at geopolitical risk firm GeoQuant.
Takaichi had laid out a record $783 billion budget for the next fiscal year starting April 1, on top of a $135 billion stimulus package introduced last year to help households with rising living costs.
A more unified opposition
Despite Takaichi’s popularity, the ruling coalition faces a more unified opposition than in previous elections.
Former coalition partner Komeito has joined forces with the Constitutional Democratic Party of Japan, the largest opposition bloc in the Lower House, to form a new centrist alliance.
The LDP and Japan Innovation Party held a razor-thin majority before parliament was dissolved on Jan. 23 for the snap election, controlling 230 of the 465 seats in the Lower House. With three independents voting alongside the LDP, the ruling bloc’s effective majority was just one seat.
The loss of Komeito could prove costly, analysts said, as the party has historically played a crucial role in mobilizing voters for the LDP.
That dynamic makes the election outcome highly uncertain, according to GeoQuant’s Schaap.
He said the new Centrist Reform Alliance could benefit from greater opposition coordination by pairing more pragmatic policy proposals from the CDP with Komeito’s voter mobilization machinery.
″[Takaichi’s] high approval is big, but opposition coordination is also really important, and the opposition coordination could overcome the high approval,” Schaap said.
“Look for high turnout. If there’s high turnout, it could be a good day for Takaichi. If there’s not a high turnout, then it will be a close race.”