Lower House Election: Stable and Long-term Administration Impact on Economic Activity

The LDP's historic landslide victory and strong US relations provide a platform for a stable, long-term Takaichi administration, which is likely to boost domestic economic activity and capex.

Key Takeaways

• 1.The LDP's landslide victory (316 seats) and strong ties with the US set the stage for a long-lasting and stable Takaichi administration.
• 2.Concerns regarding fiscal expansion are deemed excessive; the administration remains committed to fiscal discipline and debt-to-GDP reduction.
• 3.Morgan Stanley maintains its base case for a Bank of Japan (BoJ) interest rate hike in June 2026, viewing April as premature.

Table of Contents

• A landslide victory in the national election and strong Japan-US relations are essential for a long-lasting administration
• Fiscal policy — Our view remains that excessive concern is unwarranted
• (Reference) LDP Election Pledge on the Consumption Tax
• Monetary policy — Our near-term BoJ call is unchanged; if the Takaichi Cabinet becomes a long-term administration, the appointment of the next BoJ Governor will be important
• Upcoming key events, catalysts, and risks

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