- Sanae Takaichi, Japan’s first female prime minister, inherits a trade finance landscape marked by rising trade volumes but challenges from regulatory burdens and currency fluctuations.
- Takaichi’s alignment with “Abenomics” could lead to looser monetary policies and government spending, but could also undermine Japan’s export competitiveness due to a weak yen.
- Her coalition’s proposed consumption tax cut could ease domestic pressures but might limit the fiscal space needed to support critical export activities and trade finance growth.
Sanae Takaichi has made history by winning election as Japan’s prime minister today, on Tuesday, 21 October. She is the first woman to do so.
Takaichi is now faced with the dual task of delivering continuity and change. Beyond gender, Takaichi is from a humbler background than the political elite which has long dominated Japanese politics; part of her campaign was based on the promise of building a cabinet with ‘Nordic levels’ of women.
Furthermore, the shaky coalition which her Liberal Democratic Party (LDP) has formed with the rightwing Nippon Ishin has been described as a marriage of convenience. While the parties are aligned on defence spending (the LDP has proposed a target of spending 2% of GDP on defence) and increasing Japanese nationalism, it is on the economic front that cracks in the foundation can be exacerbated.
The £1.6 billion trade finance market was a critical lubricant for Japan’s once-export-dependent economy. Takaichi’s promises pragmatism in rule, and it remains to be seen whether this can transcend her conservative credentials.
The Abenomics in Takaichi-trade
Takaichi aligns closely with her predecessor and mentor, former Prime Minister Shinzo Abe. Abe’s assassination in 2022. She shares his controversial views on constitutional reform to boslter military spending, on historical Japanese colonialism, and on domestic macroeconomic strategy – but for Takaichi, the impact on markets has been more pronounced.
When Abe took office in 2012, weak exports and a trade war with China had plunged Japan into a recession. As such, the coveted Abenomics macroeconomic strategy rested since 2012 on three “arrows”: aggressive monetary easing by the Bank of Japan, flexible fiscal stimulus and a programme of structural reforms intended to lift Japan out of long-running deflation and stagnation.
‘Takaichi trade’ is, for now, a market phrase rather than a formal economic program, though its denotions encompass investors’ expectations of a renewed stimulus-heavy, dovish monetary stance tied to Sanae Takaichi. Analysts describe it as betting on heavier government spending, looser monetary policy and a weaker yen once she takes power, which, cheapened by a weak currency, could impact international demand for Japanese exports. A domestically-focused policy may also shift capital allocation away from export-driven private lending.
The inherited trade finance landscape
Trade volumes in Japan have increased on the whole in the past year. According to data from the Japanese Ministry of Finance during the first weeks of September, exports rose 5.0% year-on-year to ¥6,387.7 billion, reflecting stronger overseas demand for Japanese goods. Imports increased only 0.8% to ¥6,526.6 billion, and as a result, Japan recorded a trade deficit of ¥138.9 billion, a significant narrowing from the ¥393.9 billion deficit in September 2024: a 64.7% improvement.
For the trade finance sector, banks and trade finance companies derive their revenue from facilitating cross-border transactions. When trade volumes rise, so too does the pipeline of letters of credit, supply chain financing, and export credit insurance that constitute the sector’s bread and butter.
However, regulatory burden costs create some difficulties, with compliance costs projected to exceed ¥220 billion. Small and medium-sized enterprises (SMEs) account for 99.7% of all Japanese businesses and 70% of its employment, and these firms often struggle under mounting costs of anti-money laundering (AML) and know-your-customer (KYC) requirements.
Takaichi-trade has created an extremely volatile yen; fluctuations of up to 12% create uncertainty for exporters. A Japanese manufacturer committing to a contract denominated in dollars or euros faces the prospect that currency movements could evaporate profit margins before goods even leave the port. This uncertainty naturally dampens trade activity and, by extension, demand for trade finance products.
Takaichi’s coalition with Nippon Ishin has brought a proposed two-year suspension of the 8% consumption tax on food might ease cost-of-living pressures, but it would also constrain government revenue at precisely the moment when support for exporters has become critical. The government has allocated ¥1.6 trillion to bolster export activities, yet this largesse depends on fiscal space that tax cuts would erode.
The Trump variable
Japan occupies 4.5% of US imports. Under the current US-Japan trade agreement, the US will impose a baseline 15% tariff on almost all Japanese imports, with separate arrangements for key sectors including automobiles, aerospace, pharmaceuticals, and certain natural resources. Japan, in turn, will expand market access for US producers across manufacturing, agriculture, energy, and industry. This includes a 75% increase in US rice imports under its Minimum Access scheme, annual purchases of US agricultural and energy goods worth about $8 billion, and approval for the sale of US safety-certified vehicles without additional testing. Japan will also buy US-made aircraft and defence equipment.
In a first for any trade deal, Japan has agreed to invest $550 billion in the US, creating hundreds of thousands of jobs, strengthening manufacturing, and supporting long-term economic growth.
Takaichi is set to meet with US President Donald Trump imminently, whose behaviour is past any degree of predictability. There is a likelihood of additional tariffs, though methods like this US-investment deal do well to appease Trump by flattery. More plausible is he demanding that Japan pay more for American military protection, particularly given Takaichi’s aggressive stance on China.
While appealing to her conservative base, any disruption to Sino-Japanese commerce would reverberate through trade finance markets, particularly in Tokyo, Osaka, and Yokohama – the triumvirate of cities that dominate the sector.
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The critical question is whether the Takaichi coalition can deliver coherent policy, given a strong domestic mandate with a focus on continuity. The rapid changes to international trade make continuity a futile ambition – instead, adaptability is the only solution.
