Japan’s government is signaling a stronger reflationist approach to fiscal policy under Prime Minister Sanae Takaichi, as two newly appointed members of the nation’s top economic panel call for an economic stimulus package exceeding last year’s 13.9 trillion yen ($92.2 billion). The move highlights a shift toward more aggressive spending to counter economic slowdown and rising living costs.

New Reflationist Members Join Economic Panel

Former Bank of Japan Deputy Governor Masazumi Wakatabe and Toshihiro Nagahama, chief economist at Dai-ichi Life Research Institute, have joined the Council of Economic and Fiscal Policy (CEFP) as two of the four private-sector members. Both are well-known proponents of the “Abenomics” stimulus policies championed by former Prime Minister Shinzo Abe.

“Expectations for proactive fiscal policy could weaken if the general account expenditure for the package fails to exceed the previous year’s level,” Nagahama said at the panel’s first meeting since Takaichi’s administration took office.

The CEFP, which includes key economic ministers and the Bank of Japan (BOJ) governor, is responsible for setting Japan’s long-term fiscal strategy and outlining policy priorities.

Focus of the Stimulus Package

The proposed stimulus is designed to address multiple economic challenges:

• Cushioning households against rising living costs
• Investing in crisis management and growth sectors
• Enhancing Japan’s defence capabilities

Prime Minister Takaichi emphasized cooperation with the BOJ to ensure the stimulus complements monetary policy.

“It is extremely important that appropriate monetary policy management be carried out to achieve both future economic growth and stable price increases,” Takaichi said.

Economic Context and Need for Aggressive Stimulus

Both Wakatabe and Nagahama highlighted a sharp contraction in GDP in the July–September quarter as a sign of economic deterioration. A Reuters poll anticipates Japan’s GDP shrank by an annualized 2.5%, marking the first contraction in six quarters, largely due to a hit to exports from U.S. tariffs.

Wakatabe stressed the urgency of moving beyond deflation-era fiscal constraints, advocating for multi-year investment planning and allowing some flexibility for deficits—aligning with Takaichi’s own expansionary vision. He also underlined the importance of close coordination between fiscal and monetary policy, citing Article 4 of the Bank of Japan Act, which calls for synchronized efforts to maintain stable and sustainable economic growth.

Market Implications

Japanese stock markets have responded positively since Takaichi became the nation’s first female prime minister on October 21. Investors are optimistic that her administration will implement proactive spending measures to stimulate growth and counter deflationary pressures.

The Takaichi administration’s expansionary stance could complicate the BOJ’s timeline for restarting its rate-hike cycle, which has been paused amid uncertainty over the economic impact of higher U.S. tariffs.