By Harshit
TOKYO, NOV. 21 —
Japan’s cabinet approved a sweeping ¥21.3 trillion ($135.5 billion) stimulus package on Friday as Prime Minister Sanae Takaichi seeks to revive the slowing economy, counter persistent inflation, and deliver relief to consumers facing rising living costs.
The plan, the largest fiscal stimulus since the COVID-19 pandemic, underscores Tokyo’s renewed reliance on government spending to offset weakening demand, rising prices, and global economic uncertainty.
Three-Pillar Economic Plan
According to NHK, Japan’s public broadcaster, the package is structured around three main pillars:
- Addressing rising prices through direct consumer and energy subsidies.
- Reviving economic growth by supporting local governments and key industries.
- Strengthening defense and diplomatic capabilities amid growing geopolitical challenges in the Asia-Pacific region.
Takaichi told reporters that the government would rely on a mix of existing revenue and new government bonds to fund the package but emphasized that the debt issuance will be smaller than last year’s ¥42.1 trillion following the supplementary budget.
“We will fund the stimulus responsibly and maintain fiscal discipline,” Takaichi said. “Every yen will be used to support households and industries feeling the impact of inflation.”
Support for Households and Energy Relief
Under the plan, local government grants will be expanded, and electricity and gas subsidies will be reintroduced from January.
For the average household, these measures amount to about ¥7,000 ($45) in total relief over a three-month period. In addition, gasoline taxes will be eliminated, directly lowering fuel costs for consumers and businesses.
The government will also establish a 10-year fund to strengthen shipbuilding capabilities, a critical sector in Japan’s strategic industrial base.
As part of its long-term policy goals, Tokyo aims to raise defense spending to 2% of GDP by fiscal 2027, aligning Japan more closely with NATO standards and signaling a stronger security posture amid rising regional tensions with China and North Korea.
Political Landscape and Parliamentary Path
Japan’s ruling Liberal Democratic Party (LDP) currently leads a minority government, holding 231 of 465 Lower House seats in alliance with the Japan Innovation Party — still two seats shy of a majority.
The government plans to “swiftly compile and pass a supplementary budget bill” before year-end, with Takaichi signaling confidence that opposition parties will cooperate to ensure approval.
Analysts, however, warn that despite the political necessity of a stimulus, the plan risks deepening concerns about Japan’s mounting public debt, already the highest among advanced economies at over 250% of GDP.
Market Reaction and Bond Concerns
The announcement immediately rippled through Japan’s financial markets, particularly the government bond (JGB) market, which has been under pressure in recent weeks.
The 10-year Japanese government bond yield hit a 17-year high of 1.817% on Thursday, before easing to 1.785% on Friday, according to Bloomberg data.
Jesper Koll, expert director at Tokyo-based Monex Group, told CNBC that the package, though politically popular, risks “spooking” bond markets.
“Takaichi’s stimulus delivers on her election promises but looks more like short-term populism than structural reform,” Koll said. “The bond market is nervous because the government is adding fiscal fuel at a time when the Bank of Japan is already grappling with rising yields.”
Inflation and Economic Pressures Mount
Japan’s inflation rate has now exceeded the Bank of Japan’s (BOJ) 2% target for 43 straight months, the longest streak since records began.
In October, headline inflation climbed to 3%, up from 2.9% in September, while core inflation (excluding fresh food) remained at 3%.
The BOJ has resisted calls to aggressively tighten policy, but Governor Kazuo Ueda told parliament on Friday that the central bank must “be mindful that a weak yen could push up import prices and fuel broader inflation.”
Finance Minister Satsuki Katayama also expressed concern about yen volatility, telling reporters she was “alarmed by recent one-sided, sharp moves in the currency market” — a hint that currency intervention remains an option.
Growth Weakens as Inflation Persists
Japan’s economy is showing clear signs of fatigue. Official data released Monday showed that GDP contracted 0.4% in the July–September quarter compared to the prior quarter — the first decline in six quarters.
On an annualized basis, the economy shrank 1.8%, driven by falling private consumption and weakening exports.
Koll noted that while stimulus can offer short-term relief, it won’t address deeper structural issues such as an aging workforce, slow productivity growth, and rigid labor markets.
“Income and price-support measures provide temporary relief but don’t solve Japan’s underlying inflation problem,” he said. “The country needs supply-side reforms, not demand-side sugar highs.”
Exports Offer Modest Relief
October trade data offered a glimmer of hope: exports rose 3.6% year-over-year, beating expectations as stronger shipments to Asia and Europe offset declines in U.S.-bound goods.
Still, economists caution that external demand remains fragile amid slowing global growth and persistent trade tensions.
“Japan’s export engine is stabilizing, but domestic demand is the real concern,” said Mariko Suga, chief economist at Nomura Research Institute. “Without meaningful wage growth, consumers will continue to struggle despite fiscal support.”