Five months after Sanae Takaichi became the first woman to lead Japan, her program — now branded “Sanaenomics” — is shaping up as the deepest break with Japanese fiscal consensus since the original Abenomics of 2013. The ÂĄ21.3 trillion stimulus package (roughly $135.5 billion, approximately 3.7% of GDP, with a focus on national defense, AI, semiconductors, quantum technology, shipbuilding, nuclear fusion and cost-of-living support) is paired with a temporary suspension of the 8% consumption tax on food — a measure worth about 0.8% of GDP in foregone revenue. More significant is the doctrinal shift: in her own book, Takaichi argues that until the 2% inflation target is achieved, the primary balance rules should be temporarily suspended to prioritize fiscal stimulus, framing debt issuance not as something to avoid but as a legitimate source of funding for necessary expenditure.
The Bank of Japan, meanwhile, raised rates to 0.75% in December 2025 — the highest level in 30 years — and the market expects another 25bp hike to 1% in July 2026. But the trade deficit and pressure on the yen complicate the equation: after the Hormuz oil shock, the BOJ cut its FY2026 growth forecast to 0.5% from 1%, while sharply raising its core inflation outlook to 2.8% from 1.9%.
Why it matters: Japan is the most serious laboratory in the world for a question Europe will soon face: can an aging democracy with a 250%-of-GDP public debt simultaneously normalize rates and expand spending without triggering a Truss moment? State Street argues that Japan’s institutional structure and domestic investor base provide a buffer against fiscal shocks that the UK didn’t have. If Takaichi holds the balance through 2026, she redefines the limits of what’s politically possible for pragmatic center-right governments across the G7.
Sources: CME Group · ING · Asia Times · CNBC