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Japan’s Prime Minister Sanae Takaichi has unveiled a massive ¥21.3tn ($135.4bn) stimulus package designed to spur economic growth and shield households from the rising cost of living.
The highly anticipated package, which has been in the works since Takaichi became prime minister seven weeks ago and marks her first major policy initiative, is Japan’s largest since the Covid pandemic.
The package will primarily involve ¥17.7tn of spending and will be backed by a supplementary budget likely to be presented in coming weeks. Such a budget would be 27 per cent larger than the one secured a year ago by Takaichi’s immediate predecessor. It also involves ¥2.7tn of tax cuts and some funding from the special account.
The stimulus is aimed, in part, at offsetting some of the potential damage to Japan’s export-heavy economy caused by US President Donald Trump’s tariffs. It also aims to boost investment in national security-focused areas such as artificial intelligence and shipbuilding.
The stimulus was approved by Japan’s cabinet on Friday and follows turbulence in equity, bond and currency markets. After the cabinet approved the plan, the yen firmed slightly to reach about ¥157.13 against the US dollar in early afternoon trading in Tokyo.
The investment managers of several major global funds have voiced fears that Takaichi’s plans for more aggressive fiscal expansion could harm the country’s financial position.
Further government bond issuance is expected to fund the stimulus.
Earlier in the week, the yen tumbled to a 10-month low against the US dollar, while yields on the benchmark 10-year Japanese government bond rose to their highest level since the global financial crisis in 2008. Yields on 30- and 40-year JGBs surged to record highs on Thursday ahead of the announcement. Yields on the 10-year JGB fell one basis point to 1.795 per cent after the cabinet approved the plan.
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