Japanese Prime Minister Sanae Takaichi’s aggressive fiscal strategy is encountering intensified scrutiny as economic indicators signal persistent structural challenges. The Cabinet’s recent approval of an 18.3 trillion yen ($117 billion) supplementary budget for fiscal 2025, designed to fund extensive economic stimulus measures, has failed to alleviate concerns about the nation’s deepening economic vulnerabilities.
Japan’s economic landscape continues to deteriorate with third-quarter 2025 data revealing an annualized contraction of 1.8 percent—the first negative growth in six quarters. This downturn coincides with mounting pressures from currency depreciation, with the yen sliding to approximately 157 against the U.S. dollar in November, representing its weakest valuation in ten months. Concurrently, inflationary pressures persist as October’s core consumer price index (excluding fresh food) climbed 3.0 percent year-on-year, exacerbating household financial strain.
Analysts highlight the fundamental mismatch between Takaichi’s fiscal approach and current economic realities. While the Prime Minister advocates continuing the Abenomics framework of aggressive fiscal expansion and monetary easing, economists note that Japan’s economic environment has transformed significantly since the deflationary period that originally justified such policies. The Asahi Shimbun’s commentator Makoto Hara characterizes ‘Takaichinomics’ as ‘truly out of date’ in the current context of inflation and yen weakness.
The stimulus package includes temporary relief measures such as gasoline tax elimination, expanded energy subsidies, child-focused cash transfers, and adjusted tax thresholds. However, critics argue these measures provide superficial relief without addressing underlying price dynamics, potentially exacerbating inflationary trends. Private research firm Teikoku Databank reports approximately 20,609 food items experienced price increases in 2025—a 65 percent surge from the previous year—with persistent inflation expected through 2026.
Most alarmingly, Japan’s sovereign debt burden approaches 240 percent of GDP—the highest among advanced economies—with the new budget financing 11.7 trillion yen through additional bond issuance. This fiscal expansion has triggered bond market turbulence, with 10-year government bond yields reaching 1.95 percent on December 5, the highest level since July 2007. Market strategists predict further yield increases toward 2.0 percent, reflecting growing investor apprehension about fiscal sustainability.
Financial experts warn that the administration’s reliance on debt financing creates vulnerability to interest rate fluctuations, while potentially triggering broader financial market instability. The continued decline in bond prices has already generated significant losses for institutional investors, underscoring the risks associated with the current fiscal trajectory.