Japan has announced a sweeping $135 billion economic stimulus package, as new prime minister Sanae Takaichi seeks to revive growth, stabilise household finances and counter mounting global economic pressures. The package — one of the largest fiscal injections in recent years — underscores Tokyo’s determination to support domestic demand as the country faces weakening exports, wage stagnation and persistent inflationary strains.
The plan marks the Takaichi administration’s first major economic initiative since taking office and signals a more interventionist approach to fiscal policy. The measures aim to raise disposable income, support key industries and ease the financial burden on consumers at a time when Japan is grappling with its most complex economic environment in decades.
At the heart of the package is a programme of targeted subsidies, tax relief and household support, alongside incentives to accelerate investment in energy, semiconductor manufacturing and advanced technologies — areas Tokyo views as crucial to Japan’s long-term competitiveness. The move reflects growing recognition that Japan must strengthen its domestic economic base as geopolitical tensions reshape global supply chains.
Government officials said the measures are intended to “restore confidence, stabilise purchasing power and reinforce Japan’s industrial resilience”. The stimulus includes expanded childcare benefits, reductions in income and residential taxes for lower- and middle-income workers, and support for small and medium-sized enterprises facing high input costs. A portion of the spending will be directed toward addressing rising utility bills, which have placed additional strain on households since the post-pandemic surge in global energy prices.
Analysts say the scale of the package reflects concerns that Japan’s recovery remains fragile, despite recent signs of improvement in wage negotiations and corporate profitability. The economy contracted in the last quarter, dragged down by weak consumption and a slowdown in manufacturing, while the yen continues to fluctuate at historically low levels against the US dollar. These factors have raised pressure on policymakers to support demand before a more entrenched downturn takes hold.
Takaichi’s government is also seeking to respond to voter frustration over living-cost pressures. Real wages have fallen for more than two years, limiting household purchasing power even as inflation moderates. By offering direct support and lowering tax burdens, officials hope to counteract the squeeze on consumer sentiment that has held back economic momentum.
At the same time, the stimulus emphasises long-term strategic investment. Japan is positioning itself to secure its role in critical global industries, particularly semiconductors and clean energy. The package includes funding for next-generation chip manufacturing, hydrogen infrastructure and renewable energy development — areas where Tokyo aims to reduce reliance on foreign suppliers and strengthen national resilience.
Economists remain divided on the stimulus impact. Supporters argue that a large, decisive fiscal package is necessary to prevent Japan’s fragile recovery from stalling amid global uncertainty. They note that Japanese households tend to save rather than spend during uncertain times, meaning that tax cuts combined with direct support may be more effective in stimulating activity than waiting for monetary tightening abroad to subside.
Critics, however, warn that Japan’s already-significant debt burden — the highest among advanced economies — leaves little room for sustained fiscal expansion. They caution that without structural reforms aimed at raising productivity, improving labour flexibility and boosting long-term wage growth, stimulus measures may offer only temporary relief.
The Takaichi administration maintains that supporting households and strengthening industrial competitiveness are inseparable goals. Officials argue that restoring confidence in the near term is essential for enabling companies to invest, raise wages and sustain growth over the longer horizon.
The government is expected to finalise the legislative elements of the package in the coming weeks, with implementation phased across early 2026. Investors and international partners will be watching closely for signs of how the programme affects domestic demand, currency stability and Japan’s position in the global technology and energy landscape.
For now, the stimulus marks a defining early moment for the new prime minister — one that will shape both Japan’s economic trajectory and the credibility of her political leadership in the months ahead.
