Japan Election: The Road to 233

February 06, 2026

Elias Haddad

Initial results will trickle in from 8:00pm Tokyo time on Sunday.

All eyes on the size of Takaichi’s majority.

The larger the majority, the more negative the initial reaction for JPY and JGBs – the more positive for the Nikkei. Fade a post-election USD/JPY spike.

Japan's Prime Minister Sanae Takaichi has called a snap lower house election on February 8 to capitalize on her high approval ratings (above 60%). Sunday’s vote will take place from 7:00am to 8:00pm Tokyo time, with initial results reported shortly after polls close (11:00am London, 6:00am New York).

At the time the lower house was dissolved on January 23, Takaichi’s Liberal Democratic Party (LDP) held 196 seats and Ishin no Kai (Japan Innovation Party) 34, for a coalition total of 230. This was just 3 seats shy of the majority threshold of 233 in the 465-seat chamber.

At least four opinion polls conducted this week (Nikkei, Mainichi, Asahi, and Yomiuri) indicated that Takaichi’s coalition was projected to win more than 300 seats. For reference, 233 seats are enough to secure a simple majority, 244 seats are required for a stable majority, 261 for an absolute stable majority, and 310 for a supermajority.

As such, the key issue for market participants is how big Takaichi’s majority turns out to be. The larger the majority, the more negative the initial reaction for JPY and JGBs – the more positive for the Nikkei. As a background, when markets opened on Monday after Takaichi was elected leader of the LDP on Saturday October 4, 2025, the Nikkei rallied 5%, USD/JPY surged 2%, and 30-year JGB yields rose 14bps reflecting her expansionary fiscal platform.

The high probability tail risk outcome is Takaichi’s coalition winning a supermajority. A supermajority would give the ruling bloc the power to fast-track its pro-stimulus fiscal agenda by overriding the currently fragmented Upper House.

The low probability tail-risk outcome is Takaichi’s coalition failing to secure a majority. That would lead to policy paralysis and renewed political uncertainty. Takaichi has vowed to resign as prime minister if her LDP-led ruling coalition fails to secure a majority in the Lower House. JPY and JGBs would rally, while the Nikkei would plunge on expectations of constrained fiscal policy.

Fade to Black

We would fade a post-election USD/JPY bounce because worries over Japan fiscal profligacy are overdone. Japan nominal GDP growth is running at around 4% and leading indicators point to an encouraging growth outlook, while 10-year government bond yields are closer to 2.2%. With growth comfortably exceeding borrowing costs, Japan can sustain primary budget deficits without putting its debt ratio on an upward trajectory. In fact, Japan’s debt-to-GDP has peaked from a high of 258% in 2020.

Moreover, Japan’s mix of loose fiscal policy and tighter monetary policy is JPY positive. The Bank of Japan (BOJ) has room to normalize rates closer to the mid-point of its neutral policy range estimate (between 1.00% and 2.50%) given that the output gap is project to widen moderately within positive territory. The swaps curve fully price-in 50bps of BOJ rate hikes to 1.25% in the next twelve months.

Bottom line: we are sticking to our view that USD/JPY will edge down towards 140.00 by year-end, the level implied by US-Japan rate differentials.

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