Japan’s Prime Minister Sanae Takaichi (C) answers a question during a session of the House of Councillors Budget Committee at the National Diet in Tokyo on November 12, 2025. (Photo by Kazuhiro NOGI / AFP) (Photo by KAZUHIRO NOGI/AFP via Getty Images)
Kazuhiro Nogi | Afp | Getty Images
Japan’s cabinet approved a stimulus package totaling 21.3 trillion yen ($135.5 billion) on Friday, as Prime Minister Sanae Takaichi seeks to boost the country’s slowing economy and offer support to inflation-hit consumers.
Public broadcaster NHK reported that the package was based on three pillars: addressing rising prices, achieving a strong economy, and strengthening defense and diplomatic capabilities, according to a Google translation. This stimulus package is the largest since the Covid-19 pandemic, according to local media.
The cabinet also said it would expand local government grants, as well as provide subsidies for electricity and gas bills. The support measures will kick in January, amounting to about 7,000 yen for a standard household over a three-month period, according to the NHK report. Taxes on gasoline will be eliminated.
Japan also plans to establish a 10-year fund to enhance its shipbuilding capabilities, and enact measures to raise defense spending to 2% of its gross domestic product by fiscal year 2027.
The government said it will “swiftly compile” a supplementary budget bill to fund these measures, and plans to pass it by year-end with help from opposition parties.
The ruling Liberal Democratic Party currently is a minority government, but is now allied with the Japan Innovation Party. Together they hold 231 seats, two short of a majority in Japan’s 465-seat Lower House.
Takaichi told reporters that the government will use its revenue to fund the package, and any shortfall would be covered via issuing government bonds.
She said that the amount of government bonds would likely be lower than last year’s 42.1 trillion yen issued after the supplementary budget, emphasizing that full consideration had been given to fiscal sustainability.
Jesper Koll, expert director at Tokyo-based financial services firm Monex Group, told CNBC that Takaichi’s move will spook Japanese government bond markets.
Japanese bonds have been seeing a sell-off, with the yield on the benchmark 10-year JGBs hitting its highest since 2008 on Thursday, at 1.817%. Yields were down 3 basis points at 1.785% on Friday.
Koll said while Takaichi had delivered on her election promise with a larger-than-expected budget, the focus is on short-term and one-off populism, rather than on incentives for positive structural change.
Economic worries
The stimulus package from Takaichi’s government comes as Japan has seen inflation consistently run above the central bank’s target, with statements from senior officials on price growth stoking fresh worries.
“Income and price-support measures offer a one-off short term boost to the purchasing power of the people, but will do nothing to solve the fundamental inflation pressures,” Koll said, adding that to overcome inflation, the economy needs supply-side reform, not demand-side stimulus.
The headline inflation figure for October rose to 3% from 2.9%, staying above the Bank of Japan’s 2% target for 43 straight months, while core inflation, which strips out prices of fresh food, came in at 3%.
BOJ Governor Kazuo Ueda told the country’s parliament on Friday that the central bank should be mindful that a weak yen could affect underlying inflation by pushing up import costs and broader prices.
Japan’s Finance Minister Satsuki Katayama also warned of yen volatility and reportedly hinted at a possible intervention in the market, saying that she was “alarmed by recent one-sided, sharp moves in the currency market,” Reuters reported.
Inflation worries have been compounded by Japan’s weakening economic growth, with GDP in the three months to September contracting for the first time in six quarters.
The economy shrank 0.4% compared with the prior quarter, while it contracted 1.8% on an annualized basis, government data released Monday showed.
October trade data, released Friday, however, offered some welcome relief to the country, with exports rising 3.6% year on year and beating expectations as shipments to Asia and Europe offset declines in goods sent to the U.S.
