Takaichi’s Election Gamble: Japan’s PM & Snap Poll

Japan’s new economic policies are drawing scrutiny as the nation’s government approves a record budget and considers eliminating the sales tax on food, sparking concerns about rising interest rates and the country’s already substantial public debt.

Fiscal Policy Under Review

Analysts say the recent election has become a referendum on fiscal policy. Takaichi has proposed an expansionary economic agenda intended to alleviate cost-of-living pressures, particularly for pensioners with fixed incomes.

Her Cabinet has approved a record budget for the next fiscal year. She has also proposed scrapping the 8 per cent sales tax on food, a move that diverges from the Liberal Democratic Party’s traditional focus on fiscal discipline.

Markets have reacted negatively, with Japan’s 10-year government bond yields climbing to their highest level in nearly three decades on Tuesday.

“One argument is that her expansionary fiscal policy and ratcheting up Japan’s already record-high public-debt-to-GDP ratio, which is now about 250 per cent, is causing … interest rates to surge,” said Kingston.

“This hasn’t really yet hit the average consumer, but in the next couple of months, this is going to hit hard.”

However, Taniguchi noted the prime minister is aware of the increasing interest rates and has stressed her government will issue fewer Japanese government bonds than previously.

Taniguchi cautioned that the market’s reaction remains uncertain. He also noted that reducing the consumption tax for food and food materials has gained bipartisan support, representing a shift in the political landscape.