Takaichi Trade Faces Risks From Inflation, Yen Slump, Yield Jump

The surge in Japanese stocks, triggered by Prime Minister Sanae Takaichi’s snap election plans, may fade if she gets what she wants, as overspending drives up inflation and government borrowing costs.

Japan’s Topix index rose more than 4% this week in its strongest rally since July after reigniting the “Takaichi trade” in which investors buy stocks on expectations of more government spending. Takaichi is gambling her party will win more seats so to consolidate her power, giving her a freer hand to pursue pro-stimulus policies.