Japanese Prime Minister Sanae Takaichi (C) answers questions before the House of Councilors Budget Committee at the National Diet in Tokyo, November 12, 2025 (Photo by: Kazuhiro Nogi/AFP) (Photo by: KAZUHIRO NOGI/AFP, Getty Images)
Kazuhiro Nogi | AFP | Getty Images
Japan’s Cabinet on Friday approved an economic stimulus package totaling 21.3 trillion yen ($135.5 billion) as Prime Minister Sanae Takaichi aims to boost Japan’s slowing economy and provide support to consumers hit by inflation.
According to Google Translate, public broadcaster NHK reported that the policy is based on three pillars: tackling rising prices, achieving a strong economy, and strengthening defense and diplomatic capabilities. According to local media, the latest economic stimulus package is the largest since the coronavirus pandemic.
The Cabinet also announced that it would expand subsidies to local governments, as well as provide subsidies for electricity and gas rates. According to a report from NHK, the support measures will begin in January and will provide a standard household with a subsidy of approximately 7,000 yen over three months. Gas tax will be abolished.
Japan will also establish a 10-year fund to strengthen its shipbuilding capabilities and take steps to raise defense spending to 2% of gross domestic product by fiscal 2027.
The government said it would “swiftly formulate” a supplementary budget bill to fund these measures and pass it by the end of the year with the cooperation of opposition parties.
The ruling Liberal Democratic Party is currently in a minority government, but is currently collaborating with the Japan Restoration Party. Together, they hold 231 seats, two seats short of a majority in Japan’s 465-member House of Representatives.
Takaichi told reporters that the government would allocate revenue to finance the project and make up for the shortfall by issuing government bonds.
He stated that the amount of government bonds issued after the supplementary budget is likely to be lower than last year’s 42.1 trillion yen, stressing that sufficient consideration has been given to fiscal sustainability.
Jesper Coll, an expert director at Tokyo-based financial services firm Monex Group, told CNBC that Takaichi’s move will spook Japan’s government bond market.
Japanese government bonds have been selling, with the benchmark 10-year government bond yield hitting 1.817% on Thursday, its highest level since 2008. It fell 3 basis points to 1.785% on Friday.
Koll said that although Takaichi had fulfilled his campaign promises with a bigger-than-expected budget, the focus seemed to be on short-term, one-off populism rather than incentivizing positive structural change.
economic anxiety
The government’s stimulus package comes as Japan’s inflation rate has consistently exceeded the central bank’s target and comments from senior officials about rising prices have sparked fresh concerns.
“Income and price support measures temporarily boost people’s purchasing power in the short term, but they do nothing to address underlying inflationary pressures,” Kohl said, adding that overcoming inflation requires supply-side reforms, not demand-side stimulus.
Headline inflation rose to 3% from 2.9% in October, exceeding the Bank of Japan’s 2% target for the 43rd consecutive month, while core inflation, which excludes fresh food prices, stood at 3%.
Bank of Japan Governor Kazuo Ueda told the Diet on Friday that the central bank should keep in mind that a weaker yen could affect underlying inflation by pushing up import costs and overall prices.
Japanese Finance Minister Satsuki Katayama also warned of fluctuations in the yen, saying, “I am wary of the recent unilateral and rapid movements in the foreign exchange market,” indicating the possibility of market intervention, Reuters reported.
Inflation concerns are worsening as Japan’s economic growth slows, with gross domestic product (GDP) contracting in the three months to September for the first time in six quarters.
Government figures released on Monday showed the economy contracted by 0.4% from the previous quarter, or by 1.8% on an annual basis.
However, October trade figures released on Friday brought some welcome relief to the country as exports rose 3.6% year-on-year, beating expectations, as shipments to Asia and Europe offset declines in goods destined for the United States.
