jbef Journal of Business Economics and Finance 2146-7943 Dilek TEKER Finance and Investment (Other) Finans ve Yatırım (Diğer) MARKET REACTIONS TO POLITICAL TRANSITIONS: THE TAKAICHI ELECTION AND JAPANESE FINANCIAL MARKETS https://orcid.org/0000-0002-6452-8379 Badawi Habib Lebanese University 12 31 2025 14 2 127 140 09 09 2025 11 16 2025 Copyright © 2012, Journal of Business Economics and Finance 2012 Journal of Business Economics and Finance

Purpose- The relationship between political leadership transitions and measurable market volatility through policy expectation shifts isexamined, with specific analysis of the financial market response to Sanae Takaichi's October 2025 election as Japan's Liberal DemocraticParty leader.Methodology- Event-study techniques are employed to isolate abnormal returns, vector autoregression models are used to characterizetransmission mechanisms across asset classes, GARCH specifications are applied to document volatility regime shifts, and cross-sectionalregressions are utilized to identify systematic response patterns. Bloomberg Terminal data for the Nikkei 225, JPY/USD exchange rates, andJapanese Government Bond yields over a 250-day estimation window are analyzed.Findings- Statistically significant market responses were generated by Takaichi's election: Nikkei 225 abnormal returns of +4.7% (t = 8.7, p <0.001), yen depreciation of 1.7%, and bond yield compression of 8 basis points were observed. Bidirectional causality between equity andcurrency markets is revealed through vector autoregression, with contemporaneous correlations of -0.75. Export-oriented firmsoutperformed by 1.8 percentage points, confirming currency depreciation expectations. Unconditional volatility increases of 66% for equitiesand 125% for currencies during the event window are documented through GARCH models.Conclusion- How political signals propagate through interconnected financial markets is quantified, and the relationship between uncertaintyresolution and asset pricing in advanced economies is illuminated. Markets are demonstrated to distinguish between policy preferences andimplementation capacity, with partial reversion patterns suggesting sophisticated updating as institutional constraints become apparent.

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