Core Viewpoint - The election of Sanae Takaichi as Japan's first female prime minister has triggered significant concerns in the bond market, drawing parallels to the UK's recent economic turmoil under Liz Truss [1][3]. Economic Impact - Takaichi announced a ¥21 trillion (£103 billion) package that includes tax cuts, cash handouts, and industrial subsidies, which will exacerbate Japan's already high government debt, currently at 237% of GDP [1]. - Following the announcement, Japan's long-term government bond yields surged to multi-decade highs, with the 10-year bond yield reaching 1.81%, the highest in 17 years, and the 20-year bond yield hitting a 26-year high of 2.84% [7]. Market Reactions - Investors reacted by selling off long-term government bonds, leading to a significant drop in the yen, which is nearing its lowest point this year, and putting pressure on the Tokyo stock market [2]. - Analysts at Barclays have raised concerns about a potential "sharp concurrent decline in bonds and currency," similar to the situation faced by the UK in 2022 [3]. Investor Sentiment - There is widespread concern among Japan's largest investors regarding Takaichi's economic agenda, with fears that a "sell Japan" trade could develop if no corrective measures are taken [4][5]. - Mark Dowding from RBC BlueBay Asset Management noted that investor sentiment is increasingly wary, drawing comparisons to the situation in the UK under Rachel Reeves [6][7]. Political Context - Takaichi's rise to power follows a period of high inflation that led to discontent with her predecessor, resulting in losses for the Liberal Democratic Party in the July upper-house parliamentary elections [8]. - Despite her admiration for Margaret Thatcher, Takaichi's agenda focuses on increasing government spending rather than austerity, which has raised concerns about fiscal sustainability [9].