Japan's new Prime Minister Sanae Takaichi is preparing an economic stimulus package exceeding 13.9 trillion yen ($92 billion) in her first major policy initiative since taking office this week, according to government sources familiar with the plan. The package, aimed at easing inflation pressures on households and revitalizing strategic sectors, could be unveiled as early as next month.
The proposed stimulus, which would surpass last year's relief measures, marks Takaichi's first move to implement what she has called a "responsible proactive fiscal policy." It centers on three main priorities: inflation relief, investment in growth industries such as artificial intelligence and semiconductors, and strengthened national security spending, the sources told Reuters.
As part of the plan, the administration intends to abolish the provisional gasoline tax rate and expand local government grants for small and medium-sized businesses that have struggled to benefit from wage-hike incentives. Finance Minister Satsuki Katayama said Wednesday it was "too early to talk about the size of the upcoming extra budget," but added that it should be "of sufficient scale to cover all measures needed."
The government is drafting a supplementary budget for the fiscal year through March to finance the new spending. If expenditures surpass initial expectations, Tokyo may issue deficit-covering bonds-reviving debate over how to reconcile fiscal expansion with Japan's already heavy debt burden.
Markets reacted swiftly to the stimulus news. The Topix index climbed 0.5% to a record close of 3,266.43, having hit an all-time intraday high of 3,274.94 earlier in the session. The Nikkei erased steep morning losses to finish nearly flat at 49,307.79 after investors initially sold shares to lock in profits from earlier gains. The yen, which had strengthened early Wednesday, pared those gains and stabilized after the Reuters report.
"Fiscal and monetary policy dove Sanae Takaichi, who was confirmed as prime minister by parliament on Tuesday, is preparing an economic stimulus package expected to exceed last year's 13.9 trillion yen ($92.19 billion)," the report said. The Nikkei's rebound reflected renewed investor optimism that the new administration's policies could extend Japan's reflation cycle and bolster corporate earnings.
Takaichi, Japan's first female prime minister and a protégé of the late Shinzo Abe, has long been an advocate of "Abenomics"-style stimulus. She has pledged to maintain aggressive fiscal spending, pursue targeted tax cuts, and strengthen government influence over the Bank of Japan, which holds its next policy meeting on October 29-30. "Monetary policy is part of a broader economic policy the government holds final responsibility for," Takaichi said Tuesday, while emphasizing that "specific means of monetary policy were up to the BOJ to decide."
Bond markets, which had initially worried about fiscal excess, steadied after the government reaffirmed its commitment to debt sustainability. The 10-year Japanese government bond yield eased by half a basis point to 1.65%, while 30-year yields declined to 3.115%. "If the government executes its growth strategy and promotes corporate governance reform, the projected P/E for the Nikkei and TOPIX would increase by about 2x," analysts at Morgan Stanley MUFG Securities wrote in a client note.
