Japanese Prime Minister Sanae Takaichi has defended her government's massive $135 billion stimulus package, insisting the spending spree represents fiscally responsible policy despite mounting market concerns about Japan's colossal debt burden.
The 21.3 trillion yen economic package approved on Friday comes as Japan's fifth leader in five years attempts to kickstart growth in the world's fourth-largest economy while addressing public anxiety about persistent inflation.
Stimulus Details and Market Reaction
The comprehensive stimulus measures include energy subsidies and tax cuts designed to ease the financial pressure on Japanese households struggling with rising prices. However, anticipation of the new premier's expansive spending plans has already triggered market turbulence, pushing yields on Japanese government bonds to record highs this week and increasing pressure on the weakened yen.
Takaichi addressed these concerns directly during her announcement in Tokyo, stating that "responsible proactive fiscal policy means a forward-looking fiscal strategy and does not aim to pursue scale recklessly or expansively."
She further emphasized that through "thoroughly implementing the concept of wise spending" her administration would "strategically deploy fiscal measures to protect the lives of our citizens and build a strong economy."
Debt Concerns and Economic Challenges
The Prime Minister made ambitious commitments regarding Japan's staggering public debt, which currently stands at approximately 250 percent of GDP—one of the highest ratios among major global economies.
"While fostering a strong economy and increasing the growth rate, we will reduce the government debt-to-GDP ratio, achieve fiscal sustainability and secure trust from the market," Takaichi pledged.
Her administration faces significant economic headwinds, with recent data showing the economy contracted by 0.4 percent in the third quarter—the first shrinkage since early 2024. Meanwhile, core inflation excluding fresh food rose to 3.0 percent year-on-year in October, with rice prices soaring 40 percent higher than the previous year.
Regional Tensions and Currency Pressures
Complicating Japan's economic outlook are ongoing diplomatic tensions with China following Takaichi's comments suggesting Japan could intervene militarily if Taiwan faced attack. China has since summoned Japan's ambassador, advised against travel to Japan, and media reports indicate potential suspensions of Japanese seafood imports.
The Prime Minister sought to calm tensions, insisting Tokyo's stance on Taiwan remained "unchanged" and expressing desire for "constructive and stable" relations with Beijing.
Meanwhile, Finance Minister Satsuki Katayama issued the strongest indication yet that the government might intervene to support the weakening yen, stating authorities would take "appropriate action against disorderly foreign exchange moves." A weaker yen increases import costs for resource-poor Japan, which relies heavily on foreign food, energy, and raw materials.
Analysts remain cautious about the stimulus package's potential effectiveness. Margarita Estevez-Abe of Syracuse University's Maxwell School noted that "Japan has been engaged in expansionary economic policies for so long without being able to stimulate the economy" while public debts continued mounting.
She warned that "further depreciation of the yen will hit ordinary Japanese households with higher prices," highlighting the delicate balancing act Takaichi's government must maintain between economic stimulus and fiscal responsibility.
