By Megumi Fujikawa
TOKYO--Japan's cabinet has approved $135 billion of stimulus to help households cope with rising living costs and boost economic growth, firing off the first fiscal salvo under new Prime Minister Sanae Takaichi.
The Takaichi administration on Friday signed off on the package totalling 21.3 trillion yen, equivalent to $135.27 billion.
At the heart of the proposal are measures to support households under financial strain, a key issue for Japanese voters. The new government, which took power last month, has pledged to tackle those issues.
The newly approved measures included immediate relief like energy subsidies and a cash handout of Y20,000 per child, as well as more long-term moves such as raising the income tax threshold and abolishing a provisional gasoline duty.
Measures to spur investment in sectors such as semiconductors and artificial intelligence also featured.
The major fiscal expenditure comes as no surprise given Takaichi's expansionary stance on macroeconomic policy. While the increased spending will likely be supportive of the economy and stock markets, it could add to concerns about the nation's fiscal health. Japan's debt is more than double the size of its economy.
Those worries are reflected in Japanese government bond yields, which have been rising since Takaichi took office in October. On Thursday, the yield on benchmark 10-year JGBs hit 1.835%, the highest level since June 2008.
Takaichi has called for "responsible proactive fiscal policy,' but it remains to be seen how her administration will balance more spending with fiscal prudence.
"We will thoroughly implement the concept of wise spending and carry out strategic fiscal expenditure to protect the lives of our citizens and build a stronger economy," the prime minister said Friday.
"What Japan must do now is not let its national power decline through excessive fiscal austerity, but rather strengthen its national power through proactive fiscal policy," she added.
The supplementary budget for the economic package still needs parliamentary approval. The newly-formed coalition lacks a majority in both houses, meaning that it will need to reach across the aisle to get support for its policy measures.
In Japan, announcing an economic package in the autumn has become nearly routine, often serving as a way for the government to directly appeal to the public and show its commitment to addressing household concerns.
The government estimates that the latest package will push up the nation's growth by 1.4% annually, based on the assumption that the effects will appear over the three-year period. In the July-September quarter, the Japanese economy contracted for the first time in six quarters, increasing expectations for major stimulus.
However, some economists warn that the government must be mindful about fiscal discipline to maintain market credibility.
"A decline in fiscal and monetary credibility likely leads to yen depreciation, which, in turn, pushes up prices," said Takahide Kiuchi, an economist at Nomura Research Institute and former member of the Bank of Japan policy board. "These factors will offset the effectiveness of the economic stimulus package and undermine medium- to long-term economic and financial market stability."
"This is the inherent contradiction and weakness of the aggressive fiscal policy promoted by the Takaichi administration," Kiuchi said.
The yen has briefly weakened to around 157.90 against the dollar this week amid fiscal fears and receding expectations for an imminent BOJ rate hike.
Despite inflation, economists say it may be difficult for the BOJ to raise interest rates in December as the prime minister has emphasized the need for policy coordination with the central bank. Government data released earlier Friday showed that consumer inflation stood at 3% in October.
Write to Megumi Fujikawa at megumi.fujikawa@wsj.com
(END) Dow Jones Newswires
11-21-25 0147ET
