Unhedged – "Japan’s Next Move"

Episode Date: October 21, 2025
Host: Katie Martin (Financial Times)
Guest: Leo Lewis (FT's Tokyo correspondent)

Episode Overview

This episode explores Japan's dramatic political shift as Sanai Takeichi becomes the country's first female Prime Minister and appoints the first female Finance Minister. With markets surging and economic nerves on edge, host Katie Martin and Tokyo correspondent Leo Lewis dissect the market response, economic priorities, and risks—especially around monetary policy, inflation, and government bonds. The discussion explores whether the so-called "Takeichi trade" is sustainable and what her leadership means for Japan’s financial trajectory.

Key Discussion Points & Insights

1. The Historic Rise of Sanai Takeichi

• Japan’s First Female Prime Minister:
  • Takeichi has broken significant glass ceilings, becoming the first woman to hold Japan's top political office (02:33).
  • Leo Lewis notes:

    "There is a quiet pride here that Japan has its first female leader before the Americans got theirs..." (02:36)

  • She is described as self-made—a rarity in Japan’s often dynastic political system:

    “She made it on her own in an environment that was not set up for people like her… She made this kind of mention at the beginning, she said, you know, I've tried several times, I failed several times, I kept trying. And it was just this kind of moment of look, whatever we make of her going forward...this was a very important moment for Japan.” – Leo Lewis (03:13)

• Presentation & Leadership Style:
  • Ex-TV presenter, charismatic, and adept at communicating policy, a marked difference from predecessors (04:11).

2. Market Reactions: The "Takeichi Trade"

• Stock Market Rally:
  • Japanese stocks are up 25% this year; the Nikkei 225 flirted with the 50,000 mark, hitting all-time highs on the day of Takeichi’s appointment (05:17–06:19).
  • Memorable moment:

    "At about 11 o'clock this morning, I got a call from the press guys at Nomura because the Nikkei 225 was at...49,900...and 50,000 was sort of inside." – Leo Lewis (05:18)

• Media Excitement Over Round Numbers:

  "Get ready for a rush of Nikkei 225 at 50,000 stories. Because journal, look, we like round numbers. They're very easy stories, but also people love them." – Katie Martin (06:50)

• The "Takeichi Trade":
  • Market participants have dubbed the current surge the “Takeichi trade”—signaling bets on pro-growth, potentially reflationary policies.

3. Policy Stance – Economic Priorities & Central Bank Influence

• Economic Focus:
  • Takeichi prioritizes the economy, with particular attention to Japan’s cost-of-living crisis and surging food prices (07:58).
  • Connections drawn to Shinzo Abe’s "Abenomics" and possible new stimulus.
• Inflation & Central Bank Tensions:
  • For the first time in decades, Japanese inflation is problematic, fueling expectations that the Bank of Japan (BOJ) should raise rates (08:46).
  • Market concerns that Takeichi might pressure the BOJ to keep rates low, despite inflation.
  • Leo notes a past comment by Takeichi, criticizing a prior rate hike as “stupid”—which now fuels speculation about her future stance (09:49):

    "She said it was stupid. She used the word stupid.” – Leo Lewis (09:54)

  • The relationship between central government and the BOJ has always been cooperative, especially under former PM Abe (12:18).
  • Expectation Watch: BOJ rate hike now anticipated to be pushed back to January; a sign of market caution.

4. Japanese Government Bonds (JGBs) and Fiscal Risks

• The 'Widowmaker' Trade:
  • Shorting JGBs has long been a losing bet, but recent bond weakness and a reviving trading environment have rekindled concerns (13:41).

    "Congratulations for not using the phrase 'the widowmaker trade,' which is what always gets applied to…selling short Japanese government bonds has, has always failed." – Leo Lewis (13:41)

• Market Dynamics:
  • Liquidity and activity are returning to the JGB market after years of massive BOJ intervention (14:45).
  • Risks highlighted:
    • Overactive stimulus could trigger a "Liz Truss"–style bond market rout, on a much larger (global) scale (15:28–15:56).
  • Reassurance:
    • Takeichi and her Finance Minister are viewed as pragmatic and aware of fiscal risks, given both’s backgrounds (15:56–16:29).

5. Political Pragmatism and Administrative Challenges

• Cabinet Composition:
  • Takeichi is seen as pragmatic—she’s included rivals in her cabinet, potentially ensuring stability and unity (17:01).
  • Analysts expect that, despite strong campaign rhetoric, her policy space may be limited by political realities:

    "She may end up as mired as previous Japanese prime ministers in precisely that pragmatism…" – Leo Lewis (17:45)

• Diplomatic Horizon:
  • International challenges loom immediately: engagement with Trump and potential meetings with Xi Jinping (18:03–18:18).

Notable Quotes

• On Japan’s Historic Moment:

  "There was a quiet pride here that Japan has its first female leader before the Americans got theirs... It was a very important moment for Japan."
  — Leo Lewis (02:36–03:07)

• On the “Takeichi Trade” and Markets:

  "As you reference there, the Takeichi trade was the phrase that when we spoke to the brokers and the investors, that was one they were using."
  — Leo Lewis (06:23)

• On the Cost of Living Issue:

  "It's the price of rice. Right. This is what a lot of all... and so food prices going up have this kind of strength. So when the Bank of Japan is looking...at inflation expectations...it's a big factor because people are just talking about it."
  — Leo Lewis (07:58–08:10)

• On Fiscal Risks:

  "The worst case scenario is that she uses stimulus, she uses spending, and she pushes it too far. And we have another Liz Truss moment. Except in Japanese government bonds. Except rather than UK government bonds."
  — Katie Martin (15:28)

• On Pragmatism in Politics:

  "[Takeichi] has come across certainly in campaigning as somebody that is quite strident and does have a lot of time for the late Shinzo Abe. The problem is that Abe was dealing with a different economy and she's got a weak yen, which he didn't have, and she's got an active bond market, which he didn't have."
  — Leo Lewis (16:29)

Key Timestamps

• 02:33 – Leo on Japan’s pride at having its first female PM
• 03:13 – Takeichi’s self-made background and personal resilience
• 05:17 – Details on the stock market surge and new highs
• 06:23 – “Takeichi trade” enters market vernacular
• 07:58–08:10 – Cost-of-living crisis and inflation issues
• 09:49–09:54 – Takeichi’s earlier criticism of BOJ policy
• 12:18 – Cooperation between government and BOJ
• 13:41–13:56 – "Widowmaker trade" and JGB risks
• 15:28–15:56 – Liz Truss analogy and bond market fears
• 17:01–17:45 – Pragmatism in Takeichi’s cabinet and realistic limitations
• 18:03–18:18 – Diplomatic agenda: Facing Trump and Xi Jinping

Memorable Moments

• Leo Lewis joking about the civility of the lunch break in Japanese trading, and journalists gathering for “milestone” market levels (05:41–05:54).
• Bouncing around the “long/short” segment with sartorial pledges to wear shorts year-round in Tokyo (19:09–19:48).
• Amusement over an audacious jewel heist in the Louvre, comparing it to anime thief Lupin III (19:48–21:05).

Conclusion

This episode offers a deep dive into Japan's shifting political and financial scene with Takeichi’s unprecedented leadership. Listeners gain insight into not only market sentiment and major policy questions but also the underlying stability and risks facing Japan as policy “normalization” begins. The tone remains lively, filled with financial nerdery, local color, and candid assessments—perfect for anyone wanting to understand the momentum and stakes of Japan’s current moment, without the market jargon.