Japanese Prime Minister Sanae Takaichi on Friday declared her intent to move away from what she described as "excessive fiscal austerity" and to accelerate long-term public investment through a multi-year budget approach, underscoring her administration's drive to revive economic growth.
Speaking in parliament, Takaichi framed the shift as part of a "responsible, proactive fiscal policy" designed to raise Japan's potential growth by channeling state funds into strategic sectors such as artificial intelligence, chips and shipbuilding. She said the government would not shy away from increasing spending where it supports and leverages private investment.
"My administration will break with the long-standing trend of excessive fiscal austerity and chronic underinvestment for the future," she said, signaling a direct policy reversal from years of tight spending discipline.
At the same time, Takaichi acknowledged widespread concern among investors about Japan's deteriorating public finances and promised concrete measures to maintain market confidence. She said her government will establish specific indicators to track progress in restoring fiscal order and pledged to avoid "reckless fiscal policies that undermine market confidence." She added that the administration will seek offsetting revenues by trimming some existing subsidies.
Central to her proposals is an overhaul of the budget process to make government spending more predictable for businesses. Under the current system, budgets are set on a single-year basis, with expenditures appropriated for one year at a time so parliament can scrutinise them annually. Takaichi proposed creating a separate, multi-year budget framework to manage crisis-response spending and growth investments that are expected to generate returns above their costs and contribute to GDP growth.
Her pledge follows a landslide election victory for her ruling party on February 8, won on a platform that included promises of increased spending and a temporary two-year suspension of the consumption tax on food. Takaichi is known as an advocate of looser fiscal and monetary policy.
Markets have already reacted to her calls for larger fiscal stimulus and tax relief. Late last year, concerns about how Japan - which carries what the administration recognises as the developed world's largest debt burden - would finance large spending programs contributed to a selloff in government bonds and pressure on the yen.
Aware of that backdrop, the prime minister said the government will keep the pace of debt growth within the rate of economic expansion and will steadily reduce Japan's debt-to-GDP ratio. She added that setting clear indicators will help demonstrate progress and anchor expectations as the administration pursues its investment-led agenda.
The package of measures Takaichi outlined aims to balance the objective of lifting long-term growth by targeting technology and heavy-industry investment with a commitment to fiscal discipline framed around measurable outcomes.
Summary: Prime Minister Sanae Takaichi vowed to end prolonged fiscal austerity and to promote long-term, multi-year public investment in sectors including AI, semiconductors and shipbuilding, while committing to set specific fiscal indicators and to avoid policies that would harm market confidence.
Key points:
- Policy shift toward multi-year budgeting and targeted investment in AI, chips and shipbuilding - impacts technology, manufacturing and heavy industry sectors.
- Commitment to measurable fiscal targets and subsidy cuts to secure market confidence - affects government finances and sovereign bond markets.
- Promise to keep debt increases within economic growth and to steadily lower the debt-to-GDP ratio - relevant to fiscal sustainability and financial markets.
Risks and uncertainties:
- Investor concern that large fiscal packages could trigger renewed pressure on the yen and government bonds - risk to foreign exchange and sovereign debt markets.
- Japan's high debt burden raises questions about how expansive spending will be financed without undermining market confidence - risk to sovereign credit dynamics and public finances.
- Transition from single-year to multi-year budgeting and implementation of new investment funds may create policy and execution risks as the framework is established - potential impact on firms planning investment and on public-sector projects.