WisdomTree’s Takaichi Trade: A tactical tilt toward Japan’s defense sector and small-cap momentum

Key Takeaways:

• Sanae Takaichi’s leadership in the LDP marks a potential shift in Japan’s policy and defense priorities
• WisdomTree CIO Jeremy Schwartz maintains a bullish stance on Japanese equities
• Small-cap stocks are highlighted as a growing area of opportunity
• Emphasis on Japan’s defense sector signals heightened investor interest
• The article was originally reported by CNBC on October 6, 2025

The Shift Under Takaichi

Sanae Takaichi’s emergence as leader of the ruling Liberal Democratic Party (LDP) in Japan has drawn significant attention from political and economic observers alike. While the long-term policy implications remain to be seen, analysts suggest that her leadership could bring a renewed focus on defense spending and broader economic reforms.

Why Jeremy Schwartz Is Bullish

WisdomTree’s Global Chief Investment Officer, Jeremy Schwartz, points to these changing political dynamics as a catalyst for growth in Japan’s markets. “What’s driving our bullish bets on Japanese equities,” he explains, “is the anticipation that Takaichi’s administration may prioritize policies supporting domestic industries, notably in defense and small-cap segments.” His optimism is rooted in the idea that bolstered government support might spur additional capital flows into these areas.

Small-Cap Potential

Among the most intriguing focal points of Schwartz’s strategy are small-cap stocks. Often overshadowed by larger, internationally recognized corporations, Japan’s small-cap sector is now attracting increased attention. It can reveal niche players that might benefit disproportionately from shifts in policy, local consumer trends, and targeted government initiatives. With growing interest fueled by Takaichi’s leadership, these smaller companies could find new momentum in the domestic market.

Defense Stocks in Focus

The defense sector, traditionally a conservative area of investment, has gained fresh prominence under the new political environment. Schwartz notes that with Takaichi at the forefront, there is speculation about a stronger commitment to military and defense spending in Japan. This renewed energy could translate into substantial capital inflows for companies operating in this niche, positioning defense stocks as a potentially rewarding investment.

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