Japan’s new Prime Minister Sanae Takaichi has attempted to revive the country’s economy through a forceful fiscal expansion, but the approach has instead unsettled investors and triggered widespread turbulence across financial markets. The reaction has become known among analysts as the emerging “Takaichi cost,” a reflection of the risks investors now associate with the administration’s policy path.
The government’s strong push for increased spending has revived long standing concerns about Japan’s already heavy public debt load. Markets have struggled to interpret a policy combination that many see as increasingly inconsistent. These anxieties came to the surface in mid November when Japanese stocks, government bonds and the yen all declined at the same time, creating a rare triple market slide.
On November 18, the Nikkei 225 index recorded its sharpest single-day decline of the year with a fall of 3.22 percent. Government bonds also faced selling pressure, and the yen weakened significantly. The currency slipped below 155 yen per dollar, marking its lowest point since early 2025, and also fell into the 180 yen range against the euro for the first time since the euro was introduced in 1999. These movements highlighted how quickly the market was associating volatility with the government’s fiscal plans.
The concerns intensified the following day as key bond yields climbed. The 10-year Japanese Government Bond yield rose to 1.76 percent, reaching a level not seen since the global financial crisis of 2008. The 20-year yield also increased to 2.81 percent, a level last recorded in 1999. Investors saw the moves as evidence of growing uncertainty over Japan’s economic direction.
Market unease deepened again on November 21 when the Takaichi administration announced a 21.3 trillion yen stimulus package. Instead of calming markets, the announcement triggered another round of declines. The Nikkei fell below the important 49,000 mark, the yen hovered around 157 per dollar and government bond yields climbed sharply. These reactions further strengthened the view that the “Takaichi fallout” was becoming a defining feature of the current environment.
Sentiment worsened after the Bank of Japan signaled that it might consider raising interest rates. Investors interpreted this as a response to rising inflation and the rapid weakening of the yen. The potential shift toward tighter monetary policy, combined with aggressive fiscal spending, added confusion about the government’s overall strategy and led to more selling in both equity and bond markets.
By Monday’s close, the Nikkei had dropped 1.89 percent, leading declines across Asian markets, while the Topix fell 1.19 percent. Bond yields rose across all maturities, with the 10 year yield reaching 1.87 percent and the 30 year yield briefly touching a record high of 3.395 percent. These moves reflected the breadth of the financial pressure.
Li Fuyi, an associate researcher at the Chinese Academy of Macroeconomic Research, said the mixed signals from fiscal and monetary authorities are a major reason for the instability. She noted that Japan’s economic fundamentals remain fragile and that rising diplomatic tensions with China have added another layer of uncertainty. She warned that expectations of rate hikes from the Bank of Japan could have spillover effects on global markets.
