By Alice French

(Bloomberg) — Japanese equities are enjoying a knockout start to 2026 as Prime Minister Sanae Takaichi’s growth policies propel stocks from chips to defense to the top of developed market rankings.

The three best performers on the MSCI World Index so far this year are Japanese firms, with chipmaker Kioxia Holdings Corp. (285A.T) gaining almost 120% to top the list. Defense contractor Kawasaki Heavy Industries Ltd. (KWHIY) and chip materials producer JX Advanced Metals Corp. (5016.T) are not far behind, both rising more than 60%.

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The world-beating gains are part of a record rally for Japan’s stock benchmarks, with the Topix and Nikkei 225 (^N225) Stock Average hitting fresh all-time highs this week after Takaichi’s ruling Liberal Democratic Party secured a historic victory in Sunday’s election.

Expectations of more fiscal expansion and political stability under a newly-bolstered Takaichi government have helped drive the Nikkei benchmark up more than 5% since the election, far outperforming the S&P 500’s 1.4% fall through Thursday. Tech, defense, energy and construction have been among the biggest beneficiaries as investors gear up for an influx of government spending under Takaichi’s plan to invigorate “strategic” industries.

“Japan has emerged as one of the standout investment destinations at the start of 2026,’ said Russell Shor, a senior market analyst at trading platform Tradu. “The rally reflects political clarity, renewed confidence in fiscal stimulus, attractive valuations, and improving corporate prospects,” he added. “Investors welcome Prime Minister Sanae Takaichi’s mandate and fresh policy support.”

Goldman Sachs strategists also raised their rating on Japanese stocks to overweight in a Friday report, citing hopes for “a period of political stability” and policy tailwinds for “defense, critical resources, shipbuilding, power resources, US re-industrialization plays.”