Japan’s PM Takaichi says nation’s economic policy has changed

Japan's PM Sanae Takaichi

Japanese Prime Minister Sanae Takaichi said the government’s target of achieving a primary balance surplus, a goal in the pursuit of fiscal consolidation, would no longer be reviewed on a single-year basis, but the strategy would be revised to aim for a balance over several years.

Speaking in the lower house of parliament Friday, Takaichi said, “it’s fair to think that economic policy has changed.”

She noted that she aims to achieve nominal growth in gross domestic product that exceeds yields on Japanese government bonds, while also setting a goal to lower the nation’s debt-to-GDP ratio. She didn’t elaborate on how she’ll achieve those aims.

Takaichi’s comments hint at her determination to shift fiscal policy toward more spending, harking back to a more reflationary policy platform in the style of her mentor, former premier Shinzo Abe, whose namesake policies dominated Japan’s political agenda for nearly a decade. Takaichi said earlier Friday that Abenomics had made progress but lost momentum during the Covid-19 pandemic.

At the start of the year, the government led by Takaichi’s predecessor Shigeru Ishiba retreated from a goal of achieving a primary balance surplus in the fiscal year ending in March 2026, but noted it might still be possible to reach that goal in the year starting in April 2026.

“I’d like to take a slightly longer-term view of how I will manage finances from now on,” Takaichi said. “It’s not about achieving a balance in each fiscal year.”

Japan has the largest debt load among advanced economies, with its general government debt forecast to be equivalent to 229.6% of GDP, according to the International Monetary Fund.

Takaichi’s shift back toward Abenomics’ stance of looser monetary and fiscal policy has also been evident in recent picks of personnel for a key economic advisory panel.

The economic and fiscal policy council is set to include former Bank of Japan Deputy Governor Masazumi Wakatabe, who advocated for monetary easing alongside ex-Governor Haruhiko Kuroda. The newly formed growth strategy panel meanwhile features former BOJ board member and reflationist Goushi Kataoka and Credit Agricole chief economist Takuji Aida, known for his push for expansive policy.

So far Takaichi has emphasized that her fiscal policy will be “responsible” though expansive, and has refrained from explicitly criticizing the central bank’s rate hike path, in a potential nod to market concerns.

So far the size of the economic package she’s ordered to support the economy and household remains unclear, but if it’s significantly larger than expected, it could reignite market fears over Japan’s fiscal health, and push up long-term bond yields further.

Asked by an opposition party member about her views on fiscal populism Friday, the premier dismissed the idea.

“If you mean irresponsible populism that seeks popularity by handing out money, then it’s different from the policy of the Takaichi cabinet.”