MARKET REACTIONS TO POLITICAL TRANSITIONS: THE TAKAICHI ELECTION AND JAPANESE FINANCIAL MARKETS

Habib Badawi

doi:10.17261/Pressacademia.2025.2023

MARKET REACTIONS TO POLITICAL TRANSITIONS: THE TAKAICHI ELECTION AND JAPANESE FINANCIAL MARKETS

Abstract

Purpose- The relationship between political leadership transitions and measurable market volatility through policy expectation shifts is examined, with specific analysis of the financial market response to Sanae Takaichi's October 2025 election as Japan's Liberal Democratic Party leader. Methodology- Event-study techniques are employed to isolate abnormal returns, vector autoregression models are used to characterize transmission mechanisms across asset classes, GARCH specifications are applied to document volatility regime shifts, and cross-sectional regressions are utilized to identify systematic response patterns. Bloomberg Terminal data for the Nikkei 225, JPY/USD exchange rates, and Japanese 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 and currency markets is revealed through vector autoregression, with contemporaneous correlations of -0.75. Export-oriented firms outperformed by 1.8 percentage points, confirming currency depreciation expectations. Unconditional volatility increases of 66% for equities and 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 uncertainty resolution and asset pricing in advanced economies is illuminated. Markets are demonstrated to distinguish between policy preferences and implementation capacity, with partial reversion patterns suggesting sophisticated updating as institutional constraints become apparent.

Keywords

References

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Details

Primary Language

English

Subjects

Finance and Investment (Other)

Journal Section

Research Article

Authors

Habib Badawi
0000-0002-6452-8379
Lebanon

Publication Date

December 31, 2025

Submission Date

September 9, 2025

Acceptance Date

November 16, 2025

Published in Issue

Year 2025 Volume: 14 Number: 2

DOI

https://doi.org/10.17261/Pressacademia.2025.2023

IZ

https://izlik.org/JA58RT65YP

Cite

RIS / Bibtex

APA

Badawi, H. (2025). MARKET REACTIONS TO POLITICAL TRANSITIONS: THE TAKAICHI ELECTION AND JAPANESE FINANCIAL MARKETS. Journal of Business Economics and Finance, 14(2), 127-140. https://doi.org/10.17261/Pressacademia.2025.2023

AMA

1.Badawi H. MARKET REACTIONS TO POLITICAL TRANSITIONS: THE TAKAICHI ELECTION AND JAPANESE FINANCIAL MARKETS. JBEF. 2025;14(2):127-140. doi:10.17261/Pressacademia.2025.2023

Chicago

Badawi, Habib. 2025. “MARKET REACTIONS TO POLITICAL TRANSITIONS: THE TAKAICHI ELECTION AND JAPANESE FINANCIAL MARKETS”. Journal of Business Economics and Finance 14 (2): 127-40. https://doi.org/10.17261/Pressacademia.2025.2023.

EndNote

Badawi H (December 1, 2025) MARKET REACTIONS TO POLITICAL TRANSITIONS: THE TAKAICHI ELECTION AND JAPANESE FINANCIAL MARKETS. Journal of Business Economics and Finance 14 2 127–140.

IEEE

[1]H. Badawi, “MARKET REACTIONS TO POLITICAL TRANSITIONS: THE TAKAICHI ELECTION AND JAPANESE FINANCIAL MARKETS”, JBEF, vol. 14, no. 2, pp. 127–140, Dec. 2025, doi: 10.17261/Pressacademia.2025.2023.

ISNAD

Badawi, Habib. “MARKET REACTIONS TO POLITICAL TRANSITIONS: THE TAKAICHI ELECTION AND JAPANESE FINANCIAL MARKETS”. Journal of Business Economics and Finance 14/2 (December 1, 2025): 127-140. https://doi.org/10.17261/Pressacademia.2025.2023.

JAMA

1.Badawi H. MARKET REACTIONS TO POLITICAL TRANSITIONS: THE TAKAICHI ELECTION AND JAPANESE FINANCIAL MARKETS. JBEF. 2025;14:127–140.

MLA

Badawi, Habib. “MARKET REACTIONS TO POLITICAL TRANSITIONS: THE TAKAICHI ELECTION AND JAPANESE FINANCIAL MARKETS”. Journal of Business Economics and Finance, vol. 14, no. 2, Dec. 2025, pp. 127-40, doi:10.17261/Pressacademia.2025.2023.

Vancouver

1.Habib Badawi. MARKET REACTIONS TO POLITICAL TRANSITIONS: THE TAKAICHI ELECTION AND JAPANESE FINANCIAL MARKETS. JBEF. 2025 Dec. 1;14(2):127-40. doi:10.17261/Pressacademia.2025.2023