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Japan’s new government’s massive spending plan exposed! With Takaichi Sanae at the helm, can the economy be revived?
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Hello everyone, todayXM Forex will bring you "[XM Forex Decision Analysis]: Japan's new government's heavy spending plan is exposed! With Takaichi Sanae at the helm, can it revive the economy?". Hope this helps you! The original content is as follows:
Japanese politics has ushered in a historic moment. Sanae Takaichi has become the first female prime minister, and the birth of a new ruling coalition has attracted global attention. The cooperation between the Liberal Democratic Party and the Japan Reform Association not only brings a new direction to Japan's economic policy, but also makes people full of expectations about whether the high market will continue "Abenomics". However, against the backdrop of a weak yen and increasing inflationary pressures, the new government's economic policy seems to be moving towards a balanced path, with both the ambition of large-scale spending and the constraints of the "small government" concept. This article will provide an in-depth analysis of Japan’s new government’s economic blueprint, and discuss Takaichi Sanae’s policy choices and the deep considerations behind them.
The birth of the new ruling alliance and the policy game
The alliance between the Liberal Democratic Party and the Japan Reform Association
In October 2025, the Japanese political arena made waves. The Liberal Democratic Party and the Japan Reform Association formally formed a governing alliance. Sanae Takaichi stood on the stage of history as the first female prime minister. As an emerging political force, the Reform Society takes "small government" and efficient administration as its core concepts, advocating tax reductions, optimizing wealth distribution, and cutting cumbersome administrative procedures and wasteful expenditures. This concept is in sharp contrast to the expansionary fiscal policy that Takaichi Sanae has always supported, indicating that the policy game within the new government will be extremely fierce.
Fujita Fumitake, co-representative of the Reform Society, made it clear in a TV interview on October 16 that he and Takaichi Sanae had reached a certain consensus on the issue of fiscal expenditure, believing that Japan cannot squander financial resources wantonly and must promote expenditure reform. NomuraChief economist Nobuhiro Kiuchi analyzed that the "small government" tendency of the Reform Council may limit Takaichi's policy ambitions to a certain extent and prompt the new government to adopt a more balanced economic strategy. This cooperation model not only adds www.xmhouses.complexity to Takaichi's governance, but also foreshadows the future direction of Japan's economic policy.
Takaichi’s massive spending plan
Despite the constraints of the Reform Council, Takaichi Sanae still shows strong policy confidence. According to government sources, Takaichi is planning an unprecedented spending plan that is expected to exceed the 13.9 trillion yen plan formulated by former Prime Minister Shigeru Ishiba last year. This generous plan aims to boost the economy through fiscal stimulus and continue the high market's consistent expansionary policy style. However, the addition of the Reform Society made the implementation of this plan require more www.xmhouses.compromise and coordination. Fujita emphasized that although expansionary fiscal policy is necessary, it must be based on prudent expenditure reforms to ensure fiscal sustainability.
The legacy and new challenges of Abenomics
The brilliance and limitations of "Abenomics"
"Abenomics" is the signature policy of former Prime Minister Shinzo Abe. Through large-scale fiscal spending, ultra-loose monetary policy and structural reforms, it successfully pulled Japan out of the quagmire of long-term deflation. The core of Abe's policy is to stimulate exports through the depreciation of the yen, while boosting domestic demand through fiscal stimulus and monetary easing. However, more than ten years later, Japan's economic environment has undergone tremendous changes. The rising import costs and inflationary pressure caused by the weak yen have become new challenges. What Takaichi Sanae faces is no longer deflation, but how to achieve economic stability under the risk of inflation.
As a staunch supporter of "Abenomics", Sanae Takaichi has made the market full of expectations that he may launch "Abenomics 2.0" after taking office. However, analysts point out that the current economic situation is www.xmhouses.completely different from the Abe era. The inflationary pressure caused by the continued weakening of the yen makes simple demand stimulation no longer applicable, and any large-scale spending plan needs to be more precisely positioned to avoid further pushing up prices.
The weakness of the yen and hidden worries about inflation
In recent years, the continued weakening of the yen exchange rate has caused the prices of imported goods to soar, and the rising cost of living has become the focus of attention of the Japanese people. Osamu Takashima, head of foreign exchange strategy at Citigroup Securities, warned that if Takashima exerts political pressure on the Bank of Japan in an attempt to maintain ultra-loose monetary policy, the yen may further depreciate and inflationary pressures will intensify, which will weaken Takashima's domestic support. Yoshimura Hirofumi, a representative of the Restoration Council, also said that the Bank of Japan should gradually exit its ultra-loose policy, but the pace needs to be cautious to avoid excessive impact on the economy.
The Bank of Japan’s path to raising interest rates
From ultra-loose to moderate tightening
Unlike the Abe era, the Bank of Japan is currently gradually moving towards a track of raising interest rates. Although former Bank of Japan Deputy Governor Wakatabe Masumi said that raising interest rates may face difficulties in the short term, if the inflation target continues to improve, the central bank may still continue to raise interest rates that are still at low levels. Wakatabe in Takaichi SanaeConsidered influential in government, his views provide important signals to markets.
Analysts generally believe that a moderate pace of interest rate hikes is not only in line with the current economic situation, but also a necessary means to deal with the weakness of the yen and inflationary pressures. The Restoration Society and the Liberal Democratic Party seem to have reached a certain consensus on this issue. Neither party is willing to cause inflation to get out of control due to radical policies. Especially in the context where the rising cost of living has become a politically sensitive issue, any policy that may exacerbate price increases may trigger a public backlash.
The Art of Balance in Takaichi
The challenge facing Takaichi Sanae is how to find a balance between expansionary fiscal policy and normalization of monetary policy. The Restoration Society's "small government" philosophy requires fiscal expenditures to be more precise and efficient, while the Bank of Japan's interest rate hike trend limits the space for monetary easing. The market needs to strike a difficult balance between stimulating economic growth, controlling inflation and maintaining public support. Analysts pointed out that if Gao Shi's policy is too radical, it may lead to further depreciation of the yen and push up inflation, thereby weakening his ruling foundation.
Outlook: A new chapter for Japan’s economy
The economic policies of Japan’s new government are at a crossroads. Sanae Takaichi's large-scale spending plan demonstrates her ambition for economic recovery, but the "small government" philosophy of the Reform Party and the Bank of Japan's interest rate hike trend have added many constraints to this plan. www.xmhouses.compared with the radical stimulus of "Abenomics", the new government's policies are more likely to be characterized by balance and www.xmhouses.compromise. The dual challenges of a weak yen and inflationary pressures require the market to make a prudent choice between fiscal expansion and monetary tightening.
In the future, Sanae Takaichi’s performance in office will directly affect the direction of Japan’s economy. Can her policies achieve a win-win situation of economic growth and price stability under the constraints of the Reform Council? How will the Bank of Japan find a balance between raising interest rates and economic stability? Investors need to pay attention.
The above content is all about "[XM Foreign Exchange Decision Analysis]: Japan's new government's heavy spending plan is exposed! With Sanae Takaichi at the helm, can it revive the economy?" It was carefully www.xmhouses.compiled and edited by the editor of XM Foreign Exchange. I hope it will be helpful to your trading! Thanks for the support!
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