The Takaichi government faces questions about its fiscal policy management as the cabinet approves its supplemental budget.
Meanwhile, Prime Minister Sanae Takaichi continues to face questions about what she discussed with US President Donald Trump, notwithstanding her government’s denials of a report that suggested the US president was less than supportive of Takaichi in Japan’s worsening dispute with China.
Takaichi, however, secured an important political victory when three lawmakers announced they would caucus with the Liberal Democratic Party in the lower house, giving the government a bare majority in the chamber.
Finally, both government and LDP panels have begun deliberations on foreign population policies ahead of the government’s drafting of a basic policy in January.
Fiscal frictionThe Takaichi cabinet approved its FY2025 supplemental budget on Friday, November 28, clearing the way for the JPY18.3 trillion budget to be taken up for the Diet. The bulk of the extra budget will be funded by JPY11.7 trillion in government bonds, including nearly JPY8.2 trillion in deficit bonds. As the Takaichi government has repeatedly stressed, the total amount of bond issuance for FY2025 will still likely be lower than the JPY42.14 trillion issued in FY2024.
Nevertheless, Takaichi is rushing headlong into a widening debate over the government’s finances. The expectation is that the new supplemental budget will mean that instead of the JPY3.6 trillion primary surplus the Cabinet Office had projected for FY2026 as recently as August, the government could run a JPY3 trillion deficit instead, with risks it could swell further.
Takaichi, who has made little secret of her determination to use fiscal policy to support her vision of a more self-reliant, resilient and strategically autonomous Japan, faces competing pressures that have already shaped perceptions of her government and will shape her government’s options going forward.
On the one hand, financial markets have been sending unmistakable warning signs about her government’s policies, raising long-term bond yields to their highest levels in well over a decade and triggering a sustained selloff of the yen. (The finance ministry announced that it will issue more short-term loans in January, hoping to contain long-term spikes.)
Meanwhile, she is also facing increasingly vocal opposition from the LDP’s fiscal hawks, led by Taro Aso, who may be relatively sidelined (particularly on the LDP tax commission) but who are unlikely to remain silent. (Before the cabinet approved the budget, Aso met with Takaichi and reportedly suggested that the government’s stimulus package is excessive in scale.)
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On the other hand, Takaichi not only has her priorities to fund and an ideological inclination toward greater deficit spending, but her political incentives likely favor fiscal expansion as she seeks to satisfy Ishin no Kai, court the Democratic Party for the People (DPFP) and entice younger voters to back the LDP.
The financial establishment may lament her choices – as Nikkei wrote in an editorial, “Diluting real debt through an ‘inflation tax’ borne broadly by the public while shifting the burden to future generations hardly qualifies as ‘responsible’” – but she may have more to gain politically from pursuing “responsible fiscal expansion” than from heeding the warnings of fiscal hawks.
To be sure, her government is aware that it needs to signal to markets that it is not throwing off all constraints, but thus far it does not seem to be paring back its ambitions. Instead, for now it seems that her approach will be to spend now, reassure the markets later.
Trump, Takaichi and TaiwanDiscussion has continued regarding what exactly transpired when US President Donald Trump spoke with Takaichi following his call with Chinese leader Xi Jinping.
After the Wall Street Journal reported Thursday that Trump delivered a “subtle” but “worrying” message to Takaichi – asking her “not to provoke” China but not telling her to walk back her comments on a Taiwan contingency – the Takaichi government has sought to downplay the implication that there is a gap between the US and Japan on China.
Chief Cabinet Secretary Minoru Kihara promptly denied that Trump had said anything like what was reported by the Journal, though the government has not demanded a retraction.
Nikkan Gendai suggests that the government’s response may be more about saving face – particularly with domestic audiences – and alludes to some government sources suggesting that the call was at least as negative for Takaichi as the Journal suggested, if not worse.
Whatever was said on the call, the underlying risk of the Trump administration putting its apparent desire for a modus vivendi with China over the interests of Japan, Taiwan, and the broader regional security environment remains.
Questions about a “G2” arrangement between the US and China – a phrase that has vexed Japanese officials for years – will persist. Indeed, in parliamentary questioning Friday, Foreign Minister Toshimitsu Motegi ducked a question from an opposition lawmaker about Trump’s use of the phrase when he met with Xi in South Korea.
Government quietly regains a majorityOn 28 November, the three members of the Reform Club in the House of Representatives – an Ishin no Kai splinter – announced that they would dissolve their caucus and formally caucus with the LDP instead. As a result, the LDP’s seat total in the lower house has grown to 199 seats; with Ishin no Kai’s thirty-four seats, the governing parties now control 233 seats in the 465-seat house, a bare majority.
In practice this may not matter very much. A one-seat majority is still a majority that requires a lot of work to ensure that ruling party lawmakers are disciplined (and gives a considerable amount of leverage to any legislator or group of legislators that wants to extract concessions from the government). And the governing parties are still six seats short of a majority in the upper house, meaning that they still need to secure the cooperation of one or more opposition parties to move legislation through both houses.
Nevertheless, it is another sign that, between high approval ratings and legislative control, Takaichi is in better position to stabilize the political system than Ishiba had been. It could also reduce the temptation to call a snap election, and will make it even more difficult for the opposition – which has already struggled to unite behind a no-confidence motion – to use the threat of a no-confidence motion for leverage.
Foreign population policy debate beginsBoth the Takaichi government’s advisory council on “orderly co-existence” with foreign residents and the LDP’s foreign population policy project teams began work this week on the key policy initiatives to manage Japan’s burgeoning foreign population ahead of the government’s drafting of a basic policy in January.
The government panel, full of academic specialists on population issues, is taking a broad view, exploring ways to reassure the public that the government will work to minimize law-breaking and other disturbances by foreign nationals in the name of public order. The LDP’s project teams, meanwhile, are looking at
- changes to visa rules;
- national security, with a particular focus on real estate rules; and
- access to public welfare systems.
- Yoshihiko Noda, speaking to the press on November 29, again called for his Constitutional Democratic Party (CDP) and Komeito to forge an alliance of moderates.
- In the Cabinet Office’s survey on public attitudes towards Japan’s foreign policy, favorable views of the United States fell fourteen percentage points to 70.8%, the second-lowest figure since the question was first asked in 1998.
- The government will use the supplemental budget to augment the resources of the Japan Bank for International Cooperation (JBIC) and Nippon Export and Investment Insurance (NEXI) as they look to support investment in the United States.
- Another Ishin no Kai lawmaker is facing allegations that he violated the political funds control law.
- The Ministry of Internal Affairs released 2024 political financial account settlements, showing that whereas most parties relied on public funding for at least 70% of their incomes – more than 80% for the DPFP – public funding was significantly less than half of Sanseito’s income, with more coming from membership dues and individual donations. Funds raised through fundraising parties – the source of the LDP’s slush fund scandal – fell by nearly 50% year over year.
- Is a careless remark from Takaichi about campaign finance reform during this week’s leaders’ debate becoming an issue for the prime minister?
- A survey by Shukan Bunshun of relative dependence of major Japanese companies on revenue from China.
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Longtime Japan politics and policymaking analyst Tobias Harris heads Japan Foresight LLC. This article was originally published on his Observing Japan Substack newsletter and is republished with permission. Become a subscriber here.
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