Global Investors Like New-Look Japan Government For Now
Global money managers are circling back to Japan’s stock and debt markets, drawn by the promises of its new reflationist Japan government and a desire to diversify from pricier U.S. and European markets. The historic appointment of Sanae Takaichi as Japan’s first female prime minister has triggered a phenomenon known as the “Takaichi trade,” which is powering Japanese equities to unprecedented heights.
Record Foreign Investment Flows Into Japanese Markets
Foreign investors demonstrated remarkable confidence in the new Japan government, purchasing 4.36 trillion yen ($28.9 billion) worth of Japanese stocks in just two weeks through October 11. This represents the biggest amount of consecutive weekly purchases since at least 2005, signaling a major shift in global investment patterns. The Nikkei 225 index surged to record highs, reaching 49,228 points on October 21, 2025, up 24% for the year.
Japan Government Economic Policies Attract Global Capital
The new Japan government under Prime Minister Takaichi has promised stimulative spending, tax breaks, low interest rates, and targeted investments in sectors such as semiconductors and artificial intelligence. These pro-growth policies are spurring investors to think about reallocating cash from Europe and a frothy-looking Nasdaq, according to Peter Vassallo, FX portfolio manager at BNP Paribas Asset Management.
The Japan government stimulus agenda includes addressing inflation, developing infrastructure, reforming social security, and boosting economic security through public-private partnerships. Financial markets have responded enthusiastically to this policy mix, with the psychological impact of overcoming Japan’s “lost decades” spurring significant inflows.
Valuation Advantage Drives Investment Interest
While the Nasdaq trades at 34 times current earnings and is up 19% this year, the Nikkei offers better value at a price-earnings ratio of 22 despite stronger performance. This valuation gap is encouraging global investors to diversify their portfolios toward Japanese equities, particularly as concerns about U.S. market valuations and policy uncertainty grow.
The Japan government coalition with the Japan Innovation Party has added political clarity, though questions remain about fiscal sustainability and policy implementation. Money managers expect the rotation from other markets into Japan to be measured and selective, focusing on quality companies benefiting from structural reforms.
Market Outlook and Investor Sentiment
The Japan government faces challenges including coalition dynamics, a weakening yen, and balancing expansionary policies with fiscal responsibility. Despite these concerns, analysts believe the cross-asset market reaction offers a reasonable proxy for positive direction ahead. The accommodative monetary policy bias and emphasis on corporate governance reforms continue to support the bullish case for Japanese equities.
Global investors are watching closely as the Japan government navigates economic policy, international relations, and domestic political stability. The coming months will be crucial in determining whether current investor enthusiasm translates into sustained capital inflows and long-term market gains.
Disclaimer: This article is for educational purposes only and should not be considered as investment advice. Readers should conduct their own research or consult with a financial advisor before making any investment decisions.
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