18 Mar 2026
Prime Minister Sanae Takaichi’s landslide victory in snap parliamentary elections gives investors more reasons to be optimistic about Japan.
Authors: Miyuki Kashima, Min Zeng & Judy Chen 13/02/2026
A victory in snap parliamentary elections has handed Japanese Prime Minister Sanae Takaichi a strong mandate to boost the economy. Takaichi’s Liberal Democratic Party (LDP) now has more than two-thirds of seats in parliament's lower house and with coalition partner the Japan Innovation Party, as many as 352 seats. The question now is whether they can build successfully on the progress that has been made in extracting one of the world’s richest countries from a long period of deflation and stagnant growth.
Our view is that the election outcome is positive for Japanese equities, reducing policy uncertainty and raising the probability of near-term fiscal support for the economy. Companies can plan capital deployment with greater confidence, and closer economic alignment with the US will encourage Japanese firms to participate more actively in overseas investment cycles.
Long before this election, a major shift was playing out in Japan - a greater focus on capital efficiency, a transition toward moderate inflation, and improving corporate earnings - all adding up to a better landscape for investors.
After three decades of deflation, the economy shows signs of returning to “normal” levels of inflation. Companies are raising prices, wages are increasing due to a structural shortage of labour, and pricing power is re-emerging across a range of sectors. At the same time, the Bank of Japan (BOJ) is normalising interest rates at a measured pace, helping anchor inflation expectations without choking off growth.
Japanese companies, which have long been criticised for poor corporate governance, have increasingly boosted shareholder returns. Since 2023, the Tokyo Stock Exchange has pushed companies to improve capital efficiency. Dividend payout ratios are rising and management accountability is becoming more visible. Japan’s corporate governance code is due for an update this year, driving anticipation for more improvement in shareholder returns.
As the reforms deepen and the economy recovers, Japanese companies are on track for a structural improvement in profitability. After stagnating at around six to eight per cent for much of the 2000s and 2010s, average return on equity is projected to reach 10 per cent by FY2026 and 11 per cent by FY2028. This sustained uptrend should narrow Japan’s valuation discount relative to global peers and reinforce the case for a long-term re-rating.
Construction, semiconductors, infrastructure, and energy shares will see tailwinds as Takaichi’s government pledges trillions of yen in stimulus spending. The government released a plan late last year, focusing on bolstering 17 “strategic industries”, including defence, disaster prevention, cyber security, quantum computing, and nuclear fusion.
Financials are set to shine as they benefit from the BOJ’s gradual normalisation of interest rates and rising demand from companies for loans. Companies are also stepping up dividend payments and share buybacks, while cutting back on cross-shareholdings, boosting their attractiveness.
A host of challenges remain in the short term. Japan already holds the world’s largest debt load for an advanced economy. The government needs to fulfil pledges to cut taxes and increase spending without spooking bond investors. A sustained rise in Japanese government bond yields could lift the equity discount rate, compress valuation multiples, and tighten financial conditions. In the coming months, the stock market will be particularly sensitive to how any fiscal package from the government is funded and how firmly any exit mechanisms are set.
But without doubt Japan will stand out for its policy consistency and reform momentum. If the corporate sector can deliver sustainable improvement in returns, it will give investors more reasons for optimism over the medium term.
Important Information
This material is for Institutional Investors and Investment Professionals only, and should not be distributed to the general public or be relied upon by private investors.
This material is provided for information purposes only and is intended only for the person or entity to which it is sent. It must not be reproduced or circulated to any other party without prior permission of Fidelity.
This material does not constitute a distribution, an offer or solicitation to engage the investment management services of Fidelity, or an offer to buy or sell or the solicitation of any offer to buy or sell any securities in any jurisdiction or country where such distribution or offer is not authorised or would be contrary to local laws or regulations. Fidelity makes no representations that the contents are appropriate for use in all locations or that the transactions or services discussed are available or appropriate for sale or use in all jurisdictions or countries or by all investors or counterparties.
This communication is not directed at, and must not be acted on by persons inside the United States. All persons and entities accessing the information do so on their own initiative and are responsible for compliance with applicable local laws and regulations and should consult their professional advisers. This material may contain materials from third-parties which are supplied by companies that are not affiliated with any Fidelity entity (Third-Party Content). Fidelity has not been involved in the preparation, adoption or editing of such third-party materials and does not explicitly or implicitly endorse or approve such content. Fidelity International is not responsible for any errors or omissions relating to specific information provided by third parties.
Fidelity International refers to the group of companies which form the global investment management organization that provides products and services in designated jurisdictions outside of North America. Fidelity, Fidelity International, the Fidelity International logo and F symbol are trademarks of FIL Limited. Fidelity only offers information on products and services and does not provide investment advice based on individual circumstances, other than when specifically stipulated by an appropriately authorised firm, in a formal communication with the client.
Europe: Issued by FIL Pensions Management (authorised and regulated by the Financial Conduct Authority in UK), FIL (Luxembourg) S.A. (authorised and supervised by the CSSF, Commission de Surveillance du Secteur Financier), FIL Gestion (authorised and supervised by the AMF (Autorité des Marchés Financiers) N°GP03-004, 21 Avenue Kléber, 75016 Paris) and FIL Investment Switzerland AG.
UAE: The DIFC branch of FIL Distributors International Limited is regulated by the DFSA for the provision of Arranging Deals in Investments only. All communications and services are directed at Professional Clients and Market Counterparties only. Persons other than Professional Clients and Market Counterparties, such as Retail Clients, are NOT the intended recipients of our communications or services. The branch is established pursuant to the DIFC Companies Law, with registration number CL2923, as a branch of FIL Distributors International Limited, registered in Bermuda. FIL Distributors International Limited is licensed to conduct investment business by the Bermuda Monetary Authority.
In Hong Kong, this material is issued by FIL Investment Management (Hong Kong) Limited and it has not been reviewed by the Securities and Future Commission.
FIL Investment Management (Singapore) Limited (Co. Reg. No: 199006300E) is the legal representative of Fidelity International in Singapore. This document / advertisement has not been reviewed by the Monetary Authority of Singapore.
In Taiwan, Independently operated by Fidelity Securities Investment Trust Co. (Taiwan) Limited 11F, No.68, Zhongxiao East Road, Section 5, Taipei 110, Taiwan, R.O.C. Customer Service Number: 0800-00-9911.
In Korea, this material is issued by FIL Asset Management (Korea) Limited. This material has not been reviewed by the Financial Supervisory Service, and is intended for the general information of institutional and professional investors only to which it is sent.
Issued in Japan, this material is prepared by FIL Investments (Japan) Limited (hereafter called “FIJ”) based on reliable data, but FIJ is not held liable for its accuracy or completeness. Information in this material is good for the date and time of preparation, and is subject to change without prior notice depending on the market environments and other conditions. All rights concerning this material except quotations are held by FIJ, and should by no means be used or copied partially or wholly for any purpose without permission. This material aims at providing information for your reference only but does not aim to recommend or solicit funds /securities.
For information purposes only. Neither FIL Limited nor any member within the Fidelity Group is licensed to carry out fund management activities in Brunei, Indonesia, Malaysia, Thailand and Philippines.
FIL Investment Management (Australia) Limited (ABN 34 006 773 575, AFSL No. 237865) and FIL Responsible Entity (Australia) Limited (ABN 33 148 059 009, AFSL No. 409340) are the legal representatives of Fidelity International in Australia. This is intended as general information for a person who is a 'wholesale client' under section 761G of the Corporations Act 2001 (Cth) and has been prepared without taking into account any person’s objectives, financial situation or needs. Not for distribution to or use by retail clients.
GCT260227GLO