On 8 February 2026, Sanae Takaichi won a landslide victory in Japan’s snap election. Her LDP-Ishin coalition secured 352 seats in the 465-member Lower House, surpassing the two-thirds supermajority threshold. For the first time in years, Japan has a government with both a clear economic agenda and the parliamentary authority to execute it.

For US and European investors who may not follow Japanese politics closely, this matters. The policy framework that Takaichi is building, sometimes called “Sanaenomics,” represents the most explicitly growth-oriented programme Japan has pursued since Abenomics a decade ago. But where Abenomics relied primarily on monetary policy, Takaichi’s approach centres on industrial strategy and direct fiscal spending. The difference has implications for which sectors benefit and how foreign investors should think about exposure.

The budget tells the story

The FY2026 initial budget is 122.3 trillion yen, the largest in Japanese history. A supplementary stimulus package of 21.3 trillion yen was approved in November 2025. These are not marginal increases. They represent a government that has decided to spend its way toward a higher growth trajectory.

The spending is concentrated in areas that matter for equity investors. Seventeen priority sectors have been identified for strategic investment, including semiconductors, AI, quantum computing, robotics, and shipbuilding. Defence spending is being raised toward 2% of GDP, with the FY2026 allocation reaching approximately 9 trillion yen. Infrastructure investment is being accelerated.

For comparison, Japan’s defence budget a decade ago was roughly 5 trillion yen. The increase represents not just a security posture shift but a significant injection of demand into Japan’s industrial base. Defence contractors, electronics manufacturers, and heavy industry companies are direct beneficiaries.

How this differs from Abenomics

The comparison with Abenomics is inevitable but misleading if taken too far. Abenomics had three arrows: monetary easing, fiscal stimulus, and structural reform. In practice, the first arrow did most of the work. The Bank of Japan’s massive quantitative easing programme weakened the yen, boosted export competitiveness, and lifted equity prices. Fiscal stimulus was intermittent, and structural reform was slow.

Takaichi’s approach is different in emphasis. Monetary policy is being handled by the BOJ independently, and the direction is tightening rather than easing. The fiscal arrow is far larger and more targeted. And the structural component is focused on specific industrial policy rather than broad deregulation.

This has practical consequences for sector selection. Under Abenomics, exporters and companies with high foreign revenue exposure benefited most, because the weak yen was the primary transmission mechanism. Under Sanaenomics, the beneficiaries are more likely to be domestically oriented companies in sectors that receive direct government investment: semiconductor equipment manufacturers, defence and aerospace, infrastructure, and AI-related businesses.

The consumption tax question

One element that has drawn attention, and some concern, is Takaichi’s proposal to suspend the consumption tax on food items. This would reduce the effective consumption tax rate for household budgets and is popular with voters, but it has raised fiscal sustainability questions given Japan’s debt-to-GDP ratio of approximately 230%.

The IMF weighed in directly in February 2026, calling on Japan to “refrain from loosening fiscal policy” and warning that cutting the consumption tax would “erode fiscal space and add to fiscal risks.” The bond market expressed similar concerns during the January JGB sell-off, when long-dated yields spiked on fears about fiscal discipline.

For foreign investors, the consumption tax debate is worth monitoring but should be kept in context. Japan has sustained high debt levels for decades without a fiscal crisis, in part because the vast majority of government debt is held domestically and denominated in yen. The BOJ, despite its tightening, remains a significant presence in the bond market. The risk is real but not imminent, and the market appears to have partially priced it in after the January volatility.

Political stability as an investment factor

What may matter more for foreign allocators than any individual policy is the stability of the political environment. Japan has often suffered from short-lived governments that lacked the mandate to implement meaningful change. Takaichi’s supermajority changes this equation.

A two-thirds majority allows her coalition to override the Upper House on legislation, effectively removing the most common source of legislative gridlock in Japanese politics. Policy predictability improves, which reduces the political risk premium that international investors factor into their Japan allocation.

This is not a trivial consideration. Institutional allocators routinely cite political risk as a reason for underweighting certain markets. Japan under Takaichi offers something that is increasingly rare in developed economies: a government with both a coherent growth strategy and the political power to implement it.

What to watch

The sectors most directly aligned with Sanaenomics include semiconductor equipment and materials, where companies like Tokyo Electron and Shin-Etsu Chemical stand to benefit from both domestic investment and global supply chain restructuring. Defence and aerospace names are being re-rated as the budget allocation increases. Financial services companies benefit from the rate normalisation environment. And domestically oriented consumer companies may benefit from wage growth and spending support.

The risk to watch is the bond market. If fiscal expansion is perceived as unsustainable, a repeat of the January JGB stress could weigh on sentiment. The BOJ’s ability to manage the transition from ultra-loose to normal monetary policy, while the government is spending aggressively, is the central challenge.

For US and European investors considering Japanese equity exposure, the Takaichi government provides something that has been missing from the Japan story for much of the past three decades: a government with the will, the mandate, and the budget to pursue growth. Whether the execution matches the ambition remains to be seen, but the policy direction is clear.

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