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During a session of the House of Councillors Budget Committee at the National Diet in Tokyo on November 12, 2025, Japan’s Prime Minister, Sanae Takaichi, addressed pressing questions and outlined the government’s economic strategy. This comes as Japan faces economic challenges, and the Prime Minister is determined to stimulate growth and support citizens burdened by inflation. (Photo by Kazuhiro NOGI / AFP via Getty Images)
On Friday, Japan’s cabinet greenlit an extensive stimulus package valued at 21.3 trillion yen, which translates to approximately $135.5 billion. This initiative is a significant move by Prime Minister Takaichi to rejuvenate the nation’s economy, which is experiencing a slowdown, while simultaneously providing relief to consumers grappling with rising living costs.
According to NHK, Japan’s public broadcaster, the stimulus package is structured around three main objectives: mitigating surging prices, bolstering economic strength, and enhancing both defense and diplomatic capabilities. This comprehensive package is reported to be the most substantial since the onset of the Covid-19 pandemic, as highlighted by local media.
Among the measures included in the package are expanded grants for local governments and subsidies aimed at reducing electricity and gas bills. These measures are set to commence in January, offering an estimated 7,000 yen of relief for a typical household over a three-month period. In an additional effort to ease financial burdens, taxes on gasoline will be temporarily removed.
The government is also setting its sights on long-term improvements. Plans are underway to create a decade-long fund dedicated to boosting Japan’s shipbuilding industry. Furthermore, a commitment has been made to increase defense spending to 2% of the national gross domestic product by the fiscal year 2027, reflecting a strategic shift in defense policy.
Japan also plans to establish a 10-year fund to enhance its shipbuilding capabilities, and enact measures to raise defense spending to 2% of its gross domestic product by fiscal year 2027.
The government said it will “swiftly compile” a supplementary budget bill to fund these measures, and plans to pass it by year-end with help from opposition parties.
The ruling Liberal Democratic Party currently is a minority government, but is now allied with the Japan Innovation Party. Together they hold 231 seats, two short of a majority in Japan’s 465-seat Lower House.
Takaichi told reporters that the government will use its revenue to fund the package, and any shortfall would be covered via issuing government bonds.
She said that the amount of government bonds would likely be lower than last year’s 42.1 trillion yen issued after the supplementary budget, emphasizing that full consideration had been given to fiscal sustainability.
Jesper Koll, expert director at Tokyo-based financial services firm Monex Group, told CNBC that Takaichi’s move will spook Japanese government bond markets.
Japanese bonds have been seeing a sell-off, with yield on the benchmark 10-year JGBs hitting its highest since 2008 on Thursday, at 1.817%. It was down 3 basis points at 1.785% on Friday.
Koll said while Takaichi had delivered on her election promise with a larger-than-expected budget, the focus seems to be on short-term and one-off populism, rather than on incentives for positive structural change.
Economic worries
The stimulus package from Takaichi’s government comes as Japan has seen inflation consistently run above the central bank’s target, with statements from senior officials on price growth stoking fresh worries.
“Income and price-support measures offer a one-off short term boost to the purchasing power of the people, but will do nothing to solve the fundamental inflation pressures,” Koll said, adding that to overcome inflation, the economy needs supply-side reform, not demand-side stimulus.
The headline inflation figure for October rose to 3% from 2.9%, staying above the Bank of Japan’s 2% target for 43 straight months, while core inflation, which strips out prices of fresh food, came in at 3%.
BOJ Governor Kazuo Ueda told the country’s parliament on Friday that the central bank should be mindful that a weak yen could affect underlying inflation by pushing up import costs and broader prices.
Japan’s Finance Minister Satsuki Katayama also warned of yen volatility and reportedly hinted at a possible intervention in the market, saying that she was “alarmed by recent one-sided, sharp moves in the currency market,” Reuters reported.
Inflation worries have been compounded by Japan’s weakening economic growth, with GDP in the three months to September contracting for the first time in six quarters.
The economy shrank 0.4% compared with the prior quarter, while it contracted 1.8% on an annualized basis, government data released Monday showed.
October trade data, released Friday, however, offered some welcome relief to the country, with exports rising 3.6% year on year and beating expectations as shipments to Asia and Europe offset declines in goods sent to the U.S.
