Is the New Takaichi Economic Stimulus Package Too Ambitious?

このページを日本語で読む

The Takaichi administration has passed a new economic stimulus package. It aims to improve the "economic temperature" through supportive measures that provide consumers relief from soaring prices. Prime Minister Sanae Takaichi is counting on these stimulus measures to implement a proactive, concrete fiscal policy that helps people.

Japan's economy is at a crossroads. Overall, her administration's strategy is to achieve a strong economy through growth-driven investments. The path it takes will determine whether it can escape from prolonged deflation and transition to a growth-oriented economy. That is why the Prime Minister's aim of using fiscal policy to boost economic recovery is understandable.

Even so, mightn't her plan be too ambitious? The scale of economic measures approved by the Cabinet, including the effects of tax cuts, exceeds ¥ 21 trillion JPY ($134 billion USD).

However, the Japanese economy is not suffering from the same lack of demand as before. Therefore, there is no great need to stimulate demand through fiscal measures. Moreover, it is doubtful whether the government has adequately considered the effectiveness, funding sources, and market concerns about this degree of fiscal expansion.

Admittedly, there were voices both inside and outside the ruling Liberal Democratic Party (LDP) that hoped for the adoption of large-scale measures in line with Takaichi's previously expressed thinking. However, it would be a shame if the government inflated the budget solely because of the scale of the measures. The Prime Minister should commit to a "responsible, proactive fiscal policy."

*A scene at an Osaka supermarket on November 11, where 2025 harvest rice was being sold for ¥4,000 to ¥5,000 for five kilograms.*

Three Pillars of Takaichi's Game Plan

There are three pillars in Takaichi's economic game plan. They are combating rising prices, investing in crisis management and growth, and strengthening the nation's defense and diplomatic capabilities.

The adopted measures call for the government to subsidize consumer electricity and gas bills from January to March 2026. This is expected to reduce the burden on households by around ¥7,000 ($45) in total. Other measures would use grants to encourage local governments to issue coupons for the purchase of rice and similar items. They also include the abolition of the provisional gasoline tax rate.

A subsidy of ¥20,000 ($128) per child was also added to the package. During the 2025 Upper House election, the LDP pledged to provide ¥20,000 in cash benefits to children, among others. Prime Minister Takaichi had to retract that campaign promise in light of the LDP's crushing defeat. However, in the end, her Cabinet decided to limit the benefit to children.

Nonetheless, a cool assessment is necessary to determine the effectiveness of these generous measures in curbing rising prices. For example, rice coupons may provide emergency support for households, but would that result in rice prices sticking to the current abnormally high levels?

Watching the Signs Along the Way

Market movements also bear close watching. In recent instances, the yen has weakened, and long-term interest rates have risen significantly due to concerns about fiscal expansion.

*A board displays the Nikkei stock average, which reached an all-time high of ¥52,400 on October 31. (©Sankei by Masahiro Sakai)*

If the weak yen causes import prices to rise, that could lead to further price increases. Rising interest rates would negatively impact investments, which the Prime Minister places immense importance on. Eventually, this strategy could prove counterproductive.

Regarding fiscal management, Takaichi has also expressed her intention to review the existing target of achieving a primary balance surplus. The administration is now considering a system that would allow flexible fiscal management, without being bound by single-year income and expenditure targets.

If the revised targets lead to greater fiscal expansion, market confidence could be further eroded. The Prime Minister must explain how she plans to allay such concerns.