However, some issues still need to reportedly be ironed out between the LDP and Ishin before a final decision on their partnership is made, Reuters reported. Notably, it is unclear if Ishin will join the LDP in a formal coalition or it will only lend its political backing.

In a note to clients, analysts at Deutsche Bank said the priority for both parties will be to simultaneous prevent defections from Ishin and attract independent lawmakers. Should they end up securing a simple majority in the lower house, the stability of the new premier’s administration would significantly increase," they added.

For financial markets, Takaichi is seen as far more fiscally dovish than predecessor Shigeru Ishiba, and has supported tax cuts and accommodative policy for the Japanese economy.

Takaichi has in the past opposed interest rate hikes by the Bank of Japan, and is widely expected to maintain this stance as Prime Minister. More fiscal spending, with Takaichi having outlined plans for tax breaks, subsidies, and consumer support, is also anticipated to further boost Japanese economic growth and corporate earnings.

"[I]f the LDP and Ishin form a coalition and Takaichi is selected as prime minister, the likelihood of an aggressive fiscal policy, including a consumption tax rate reduction, would be higher than under a sole LDP administration," the Deutsche Bank analysts said.