A hawk in pigeon’s clothing? Japan’s next prime minister candidate, Sanae Takaichi, plans to raise financial income tax to 30%.

Representative Sanae Takaichi has not directly pledged to strengthen taxation on financial income as part of her platform following the 2025 LDP presidential election (nomination period begins September 22, voting and counting on October 4). Her main policy proposals center on designing a “tax credit with benefits” system combining income tax cuts and cash payments, establishing a bipartisan “National Conference” for social security reform, conducting a “major cleanup” of subsidy programs (such as those related to solar panels), and reviewing foreign policy. No specific mention of financial income taxation has been confirmed. However, she has advocated for strengthening taxation on financial income in the past. Primarily during her 2021 LDP presidential campaign, she indicated a willingness to consider raising tax rates after achieving a 2% inflation target. Specifically, she proposed raising the tax rate on financial income such as stock transfer gains and dividends from the current 20% to 30%, stating that “insisting only on tax cuts is dishonest.” This statement continued to be referenced in discussions after the leadership election, and in interviews around 2024, he touched on the topic with the nuance that “tax increases on financial income are necessary.” However, this was not prominently featured in his 2025 leadership election pledges.

It is anticipated that he will likely implement strengthened taxation at some point after assuming the position of Prime Minister.

If the tax rate on financial income is raised from the current 20% to 30%, the following impacts are expected on the stock market:

1. **Downward Pressure on Stock Prices** The tax hike may reduce investors’ take-home profits, potentially diminishing the appeal of stocks. Short-term traders and high-frequency traders, in particular, are likely to increase selling, putting downward pressure on stock prices. Past similar cases (e.g., discussions on raising capital gains taxes in the U.S.) show examples of increased market volatility around the time of tax rate change announcements.

2. **Changes in Investment Behavior** Increased tax burdens may prompt investors to take profits earlier or shift toward assets offering tax advantages over dividends (e.g., utilizing tax-exempt NISA accounts or bonds). Additionally, while investors prioritizing long-term holdings may increase, reduced short-term trading could risk lowering market liquidity.

3. **Sector-Specific Impact Differences** Sectors reliant on dividends or capital gains (e.g., financials, energy, technology) are particularly vulnerable. Conversely, defensive stocks and low-volatility stocks may face relatively less impact.

4. **Foreign Investor Trends** Japan’s stock market is significantly influenced by foreign investor trading. If tax hikes reduce investment profitability, accelerated capital outflows from overseas investors could put downward pressure on the Nikkei and TOPIX. The 2021 incident where former Minister Takaichi’s remarks on increasing financial income taxes sparked temporary market concerns and caused the Nikkei to fall serves as a relevant reference.

5. **Market Adaptation and Mitigating Factors** However, the market impact depends on policy details and implementation timing. For instance, phased implementation or accompanying mitigating measures like expanding NISA allowances could lessen the effect. Furthermore, Japan’s economy in 2025 is also influenced by the Bank of Japan’s monetary policy shift and yen depreciation correction, which could potentially offset the impact of the tax rate change.

**Estimated Quantitative Impact** Past research and market analyses (e.g., reports from the Financial Services Agency and securities firms) suggest that a 10% tax rate increase could reduce stock market trading volume by approximately 5-10% and cause major indices (such as the Nikkei Average) to fall by about 2-5% in the short term. However, given the market environment as of September 2025 (Nikkei Average around 39,000 yen, PBR around 1.3 times), strong corporate earnings and the behavior of overseas investors will likely influence the actual impact.

**Conclusion**