Japanese Prime Minister Sanae Takaichi’s ambitious economic strategy, dubbed "Sanaenomics," has ignited global debate as analysts question its sustainability amid soaring public debt and shifting fiscal priorities. Modeled after Abenomics, the policy combines consumption-focused tax cuts, industrial subsidies, and accelerated defense spending to revive growth. But with Japan’s debt-to-GDP ratio already at 240% – the highest among advanced economies – experts warn of hidden risks.
The Funding Dilemma
Takaichi’s plan to slash gasoline taxes and high school tuition fees will cost nearly 2 trillion yen ($12.65 billion) this year, while projected revenue gains from adjusted tax measures fall short at 1.2 trillion yen. With limited room for additional borrowing, the government faces pressure to issue more bonds despite debt servicing already consuming a quarter of annual expenditures. "The math simply doesn’t add up," remarked Cai Liang, a Shanghai-based policy analyst.
Defense Spending Surge
A cornerstone of Sanaenomics is the abrupt increase in defense expenditure to 2% of GDP in fiscal 2025 – two years ahead of the original 2027 target. A proposed 1% defense income tax, set for 2027, aims to fund this expansion. Critics argue this prioritization risks diverting resources from education, social security, and aging population support. "Military investments can’t replace long-term social stability measures," noted researcher Zhou Shengsheng.
Global Implications
As Japan navigates these fiscal challenges, international markets watch closely. While short-term stimulus measures may boost consumer activity, analysts caution that structural reforms and sustainable revenue streams remain absent. With defense now central to Japan’s economic strategy, 2026 could prove pivotal for Asia’s geopolitical and financial landscape.
