Takaichi lays out ‘proactive fiscal policy’ as new session of parliament begins

Prime Minister Sanae Takaichi on Monday pledged to use long-term government spending to spur investment and strengthen Japan’s economy, pressing ahead with her “responsible, proactive fiscal policy” even as a weak yen and funding concerns cloud the outlook.

Her policy address to parliament set out the government’s priorities for a 69-day autumn session, which opened on the same day and is scheduled to run through Dec. 12.

Takaichi argued that Japan was beginning to break out of nearly three decades of economic stagnation but needed further action to turn higher wages and investment into sustained growth.

“The government will take a step forward,” she said, promising large-scale, long-term and predictable fiscal spending to draw out private investment.

Her economic agenda rests on the view that public spending can spur domestic investment, raise Japan’s growth potential and increase incomes and business profits, ultimately boosting tax revenue.

Takaichi described a prolonged period of uncertainty about the future that had discouraged companies from investing, raising wages and passing on costs, while households held back on spending.

That pattern is changing, she said, pointing to wage increases in the 5% range for three consecutive spring bargaining rounds and domestic private-sector capital investment reaching a record ¥128 trillion ($811 billion) in fiscal 2025.

But the challenge has shifted as the country moves beyond deflation. A persistently weak yen has raised import costs and fueled inflation, complicating efforts to translate nominal wage increases into improvements in living standards.

Economists have cautioned that excessive fiscal expansion could add to inflationary pressure and raise borrowing costs, potentially discouraging the private investment that the prime minister seeks to encourage.

Still, Takaichi outlined plans to support long-term investment through a new “strong and prosperous Japan” budget framework, with certain priority economic-security investments managed separately through special accounts.

Ministries have requested approximately ¥14.2 trillion under the framework for fiscal 2027, which begins in April 2027 — ¥12.2 trillion through the general account and about ¥2 trillion through the energy special account. They remain subject to review during budget preparation.

Compared with her inaugural address last October, the Japanese leader offered more concrete plans for her fiscal agenda, including a five-year investment roadmap.

The government will finalize a growth strategy implementation plan by year-end, Takaichi said, setting priorities for five years of public and private investment from fiscal 2027 across 17 strategic sectors and 62 products and technologies.

The agenda is expected to improve access to labor and financing, strengthen workforce training and help startups bring their technologies to market.

Alongside growth measures, she promised “crisis management investment” in areas such as energy and resource security, food supply, disaster preparedness, maritime affairs and space — linking industrial policy to withstand external shocks.

That connection ran through the speech’s foreign policy section, in which Takaichi described an increasingly unstable international environment, including continuing turmoil in the Middle East.

“The free, open and stable international order that we have grown accustomed to is being profoundly shaken,” she said.

Japan would play a more active role in the peaceful resolution of conflicts, including peace mediation, while working to uphold an international order based on the rule of law, she said.

Takaichi also called for stronger cooperation with allies and like-minded countries under her updated Free and Open Indo-Pacific strategy, presenting regional resilience and autonomy as priorities.

On China, she paired a commitment to comprehensively promote a “mutually beneficial relationship based on common strategic interests,” while asserting Tokyo’s position on Chinese military activity and coercive measures around Japan, as well as issues in the East and South China seas.