The Latest in Dutch and Japanese Politics

Editors’ Note: MarketMinder Europe is politically agnostic. We prefer no party or politician and assess developments for their potential economic and market implications only.

As October wound down, two major sources of global political uncertainty came into better focus. Namely, a snap election yielded another hung parliament in the Netherlands, whilst Japan’s new prime minister (PM) unveiled her cabinet and economic agenda, to much fanfare amongst commentators we follow. Here we will dive into what we think they mean for global markets.

The Netherlands’ 29 October Snap Election Yielded Another Hung Parliament

With all votes now tallied, the centrist Democrats ’66 (D66) and populist/nationalist Freedom Party (PVV) tied for the most parliamentary seats, with 26 each.^[i] Yet the popular vote was unclear until Monday evening, when mail-in ballots edged D66 just past the PVV.^[ii]

No party came anywhere close to the 76 seats necessary for a majority. Hence, the results usher in coalition talks that we think will move slowly, given the parties’ current policy divide. Exhibit 1 shows where the result leaves each party in terms of seats, and how that squares with the outgoing parliament.

Exhibit 1: Dutch Election Results

Source: Politico, as of 5/11/2025.

To us, the results speak to the metaphorical pancaking of European parliaments, in which centrist parties’ previously large support flattens out, with newer parties rising on the fringes. This is how the Dutch parliament wound up with 15 parties. And it can complicate coalition-building.

Looking ahead, D66’s popular vote plurality hands the official coalition-forming mandate to leader Rob Jetten. D66 has partnered with four separate Dutch coalitions since its 1973 inception, most recently teaming up with the conservative-liberal People’s Party for Freedom and Democracy (VVD) and former PM Mark Rutte, the Christian Democratic Appeal (CDA) and the centrist Christian Union (CU) from 2017 – 2023.^[iii] In our view, this hints at D66’s most natural partners.

First and foremost, though, PVV is highly likely out of consideration. The two hold vastly different views on immigration policy (a key topic in this election), and the D66 campaigned on avoiding a coalition with any party it deems “far right,” likely referencing the PVV and other conservative parties.^[iv] That said, we have seen some buzz around a “broad centrist coalition” consisting of the D66, VVD, CDA and the leftist GreenLeft-Labour alliance (GL-PvdA), though the VVD has ruled out forming a coalition with the GL-PvdA over broad policy differences.^[v] As always, political bargaining could bridge the divide. But it would likely mean heavy political gridlock within the coalition. Another possibility? A “centre-right” coalition of the D66, VVD, CDA, and the conservative JA21 party, though this, too, could cut against the D66’s campaign pledges.^[vi]

Pancaking, policy positions and party promises have historically dragged out coalition-building in the Netherlands. Back in 2023, talks took 150 days before a PVV-majority cabinet formed under compromise Prime Minister Dick Schoof.^[vii] In 2021, it took a record-long 299 days.^[viii] 2017? 225 days.^[ix] Thus, we think a long formation process is widely expected at this point. Yet history suggests these are fine periods for Dutch stocks, which outperformed global stocks in euros during coalition talks in 2017 and 2023.^[x] Sure, they trailed world stocks’ 19.1% rise in euros during 2021’s discussions, but they still rose a healthy 15.8%.^[xi] Essentially, Dutch markets tilt heavily toward Tech, meaning trends in the sector—particularly semiconductors—tend to sway broad indexes significantly.^[xii] In nations with smaller stock markets, we find such matters often outweigh local politics.

Japan’s New Prime Minister Revealed Her Economic Agenda, Boosting Sentiment

New PM Sanae Takaichi—and her cabinet—seem to be growing popular in the Land of the Rising Sun. In the week after her election, polls showed her approval rating between 64.4% and 75.4%, miles above her predecessor, Shigeru Ishiba.^[xiii] Citing this popularity, commentators we follow claim Takaichi amassed enough political capital to pass her economic plan, which she announced to parliament Tuesday.^[xiv] Her plan outlines several key initiatives, including:

• Targeted investment in 17 strategic industrial sectors, including artificial intelligence, shipbuilding, defence, semiconductors and telecommunications, amongst others.^[xv]
• Proactive government spending on critical growth sectors to strengthen supply structures, increase income, boost corporate profits and enhance tax revenue without raising tax rates.
• Doubling defence spending to around 2% of gross domestic product (GDP, a government-produced measure of economic output) by 2027, supporting domestic arms production and cybersecurity infrastructure.
• Proposals for labour market reform, refundable tax credits and raising basic income tax deductions for working-age households (with less emphasis on direct government-mandated wage increases).
• New investments in energy security and next-generation nuclear power, alongside regional revitalisation and infrastructure.
• Removing excess red tape and supporting competition in technology-driven fields, such as AI deployment and automation.

In our experience, many see reform and stimulus plans as critically needed in Japan, so financial commentators we follow have expressed optimism over the prospects.^[xvi] But hold on. To pass all this, Takaichi needs support in the upper and lower houses of Japan’s National Diet. Her coalition (the Liberal Democratic Party [LDP] and the Japan Innovation Party) lacks a majority in both—two and five seats short in the lower and upper houses, respectively.^[xvii] Thus, she will need to secure some opposition votes to enact much of anything. Mind you, she has already called for cooperation and consensus-building with opposition parties as a necessary step for enacting her policies.^[xviii] But will she get it? That is unclear, in our view, especially since her popularity—and the LDP’s rebound—is still newfound.

She could, of course, find success. It has happened. For instance, in 1960, then-PM Hayato Ikeda’s “Income Doubling Plan” overcame broad Diet opposition through its popular economic initiatives, eventually winning over public support and national debate.^[xix]

Or take Takaichi’s mentor, the late Shinzo Abe. Whilst his LDP-Komeito coalition held a Diet majority upon his 2012 election, it negotiated key reforms with influential interest groups and opposition factions—most notably in agriculture, where reforms tied to trade agreements (e.g., the Comprehensive and Progressive Agreement for Trans-Pacific Partnership) faced intense opposition.^[xx]

But we also find it worth recalling many of the low-hanging reforms already passed under Abe.^[xxi] The current gridlock and party make-up of government may or may not facilitate more reform, but those already passed seem entrenched. Besides, markets show little sign of needing a helping hand from her government. In yen terms, Japanese stocks rose 18.3% in the year before she became LDP leader on 4 October, edging the MSCI World’s 18.0%.^[xxii] This, as Japanese political turmoil reigned! Japan has led by more since, buoyed by sentiment.^[xxiii] But there is more to this rise than just reform hope, in our view.