Japanese Prime Minister Sanae Takaichi's 18.3 trillion yen ($117 billion) supplementary budget for fiscal 2025, approved in December, has intensified debates about Japan's economic trajectory amid persistent inflation, a weakening yen, and record-high public debt. The package—touted as a lifeline for households—includes fuel tax cuts, energy subsidies, and cash handouts, but critics argue it risks deepening structural challenges.
Economic Contraction Fuels Skepticism
Preliminary data shows Japan's economy shrank 1.8% annually in Q3 2025, its first contraction since 2024, driven by sluggish consumption and U.S. trade pressures. The yen hit 157 per dollar in November, a 10-month low, while October core inflation climbed to 3.0%, squeezing household budgets. Analysts warn Takaichi's adherence to 'Abenomics'-style stimulus ignores today's inflationary reality. "In a weak-yen environment, pumping money into the economy is like pouring oil on a fire," said Asahi Shimbun commentator Makoto Hara.
Short-Term Relief, Long-Term Risks
While the stimulus offers temporary relief, over 20,600 food items saw price hikes this year—a 65% jump from 2024. Real wages fell 0.1% in October, exacerbating cost-of-living strains. Critics, including economist Mitsuru Saito, call the measures "politically expedient but economically incoherent," noting bond-funded spending could worsen debt sustainability. Japan’s debt-to-GDP ratio, already at 240%, may rise further as 64% of the budget relies on new bonds.
Markets Sound Alarm
10-year government bond yields hit 1.95% on December 5, nearing 2007 levels, reflecting investor unease. "The bond market is signaling that fiscal credibility is eroding," warned Sumitomo Mitsui strategist Masahiro Ichikawa. With the Bank of Japan under pressure to hike rates, Takaichi’s resistance to tighter policy risks a vicious cycle of yen depreciation and imported inflation—a challenge her cabinet has yet to squarely address.
