Japan's new Prime Minister Sanae Takaichi has sought to jolt the economy with an aggressive fiscal push, but the strategy has instead unnerved investors and ignited a broad sell-off across financial markets, illustrating Japan's "Takaichi-cost."

The Takaichi administration's commitment to expansive spending has amplified long-standing concerns over Japan's towering public debt, leaving markets struggling to price in a policy mix that many see as increasingly contradictory. 

The unease erupted in mid-November as Japanese stocks, bonds and the yen fell simultaneously – a rare triple-market slide. 

On November 18, the Nikkei 225 slumped 3.22 percent, its steepest one-day drop of the year, while government bonds and the yen were heavily sold. The currency broke below 155 yen per dollar, its weakest level since January 2025, and slid into the 180 yen range against the euro for the first time since the single currency's launch in 1999, highlighting the tangible impact of Japan's "Takaichi-cost."

Volatility deepened on November 19 as benchmark yields surged, with the 10-year Japanese Government Bond (JGB) yield jumping to 1.76 percent – the highest since the 2008 financial crisis – and the 20-year yield climbing to 2.81 percent, a level last seen in 1999.

A 21.3 trillion yen ($136.8 billion) stimulus package unveiled by the Takaichi administration on November 21 further rattled markets, sending the Nikkei quickly below the key 49,000 threshold, keeping the yen under pressure around 157 yen per dollar, and pushing JGB yields sharply higher once again, deepening "the Takaichi Fallout."

Sentiment deteriorated further after the Bank of Japan (BOJ) signaled the possibility of raising interest rates — a move investors interpreted as a response to persistent inflation and rapid yen depreciation. The prospect of tighter monetary policy, layered atop expansionary fiscal measures, deepened confusion about the government's strategy and fueled another wave of equity and bond selling, further entrenching "Takaichi-cost" in investor calculations.

By the close of trading on Monday, the Nikkei 225 had fallen 1.89 percent, leading losses across Asian markets, while the Topix slipped 1.19 percent. Bond yields climbed across the curve, from three-month to 30-year maturities, with the 10-year yield reaching 1.87 percent and the 30-year briefly touching a record high of 3.395 percent, signaling the full scale of the fallout.

Li Fuyi, an associate researcher at the Chinese Academy of Macroeconomic Research, said the conflicting policy signals are a key driver of market instability. 

"Japan's fundamentals remain fragile, and the combination of loose fiscal policy and tighter monetary intentions has disrupted expectations," she noted. Heightened diplomatic tensions with China have added to the uncertainty, she said, warning that rising expectations of BOJ rate hikes could reverberate through global markets.

(Cover via VCG)