Japan's ruling coalition under Prime Minister Sanae Takaichi has secured a decisive two-thirds majority in the House of Representatives, enabling ambitious fiscal policies that are drawing scrutiny from economic analysts. The Liberal Democratic Party's proposed spending plan, which includes a significant defense budget increase, faces warnings about exacerbating Japan's national debt – currently estimated at 266% of GDP according to 2026 IMF projections.
Professor John Gong of the University of International Business and Economics told analysts this week that the combination of military spending hikes and yen depreciation creates a perfect storm for fiscal instability. The Japanese currency has weakened 18% against the dollar since January 2025, complicating debt financing for what would be Japan's largest-ever defense budget.
Regional observers note the spending plan comes amid heightened security tensions in Northeast Asia, with recent DPRK missile tests and increased US military deployments in the region. Economists warn that Japan's debt-driven approach could pressure neighboring economies to follow suit, potentially destabilizing financial markets across Asia.
Business leaders are particularly concerned about the plan's timing, as many Japanese manufacturers struggle with rising import costs. The Tokyo Stock Exchange has seen increased volatility this month, with the Nikkei 225 fluctuating within a 5% range since the coalition's victory was confirmed.
