The Nikkei 225 index rallied by more than 5% in early trade on Monday, briefly crossing the 57,000 mark for the first time. It then gave up some gains, but still closed up 3.9% at a record high of 56,363.94.

The LDP's decisive win will help Takaichi advance her pro-business policies without having to negotiate extensively with opposition parties.

Takaichi told reporters on Sunday that she would pursue a "responsible yet aggressive" fiscal policy and would not reshuffle the Cabinet, which was formed less than four months ago.

Japan's first female prime minister called the snap election last month, just a few months after taking office in October. Her success is in marked contrast to her two predecessors, under whom the party lost its parliamentary majority, battled corruption scandals and struggled to curb rising costs.

Markets commentators say Takaichi's policies could boost the Japanese economy.

The election outcome and upcoming moves like "stimulus, tax tweaks, and deregulation" will be "additional fuel for an existing bull trend", investment analyst Yuka Marosek told the BBC.

Chris Scicluna, head of research at Daiwa Capital Markets Europe, said Japanese stock investors had "long been believers in Takaichi".

"They're confident that Japanese firms will benefit from her pledge to end austerity, they love her promises of more investment to boost growth, [and] they like the fact she's identified several strategic sectors such as defence and AI to benefit from extra policy support," he told the BBC's Today programme.

However, he added that investors in Japanese government bonds and the yen were "a lot more agnostic if not downright sceptical" about Takaichi's intentions.

"Japanese government debt's extremely high and investors in bonds and the yen want to know how she intends to finance her plans," he said.

Historically low inflation in the country has made it very sensitive to the rising cost of living over recent years.

At this election, voters at polling stations told the BBC that they were worried about the increasing costs of groceries and rent.

The economy is also under pressure from the country's ageing population, which has seen a shrinking workforce and ballooning social care costs.

Takaichi has pledged to cut taxes and boost the Japanese economy through more spending - though where that money will come from is another big concern, given Japan's high government debt. Critics warn this could deepen instability in Japan's already fragile economy.

"We bear an extremely heavy responsibility to focus on steadily delivering on the campaign pledges we have made," Takaichi said on Sunday as her party's victory became clear, Kyodo reported.

The LDP had lost its parliamentary majority under Takaichi's predecessor Shigeru Ishiba. And Takaichi banked on her personal appeal to turn the LDP's lost fortunes around.

She has consolidated support among the LDP's conservative base by reviving long-dormant goals like revision to Japan's pacifist constitution and emphasising traditional values.

But she has also connected with younger voters in a way not seen before: her handbags and pink pens have become unlikely zeitgeist items.

US President Donald Trump congratulated Takaichi on her victory, writing on Truth Social that it was an "Honor" to endorse her ahead of the election.

"The wonderful people of Japan, who voted with such enthusiasm, will always have my strong support," Trump said.

Just one week after Takaichi took office in October last year, Tokyo rolled out the red carpet for Trump when he visited Japan. It was her diplomatic debut, and the optics were striking: fists pumping as the US president praised her in front of thousands of US soldiers.

Takaichi is due to travel to Washington in March for a second meeting with Trump.

Additional reporting by Peter Hoskins and Adam Hancock