Largest package since the pandemic
Japan’s cabinet has approved a 21.3 trillion yen (about $135.5 billion) stimulus package aimed at lifting a cooling economy and easing pressure on households hit by persistent inflation. Local media described the plan as the country’s most expansive support program since the Covid-19 crisis.
According to NHK, the measures are built around three priorities: curbing rising prices, reinforcing economic growth, and strengthening defense and diplomatic capabilities. The government plans to move fast, with support beginning in January.
Household support and energy subsidies
The package will include expanded local government grants and new subsidies to reduce electricity and gas bills. A typical household will receive around 7,000 yen in relief spread across three months, NHK reported. Gasoline taxes will also be removed as part of the effort to ease cost-of-living pressures.
Alongside household support, Japan will create a decade-long fund to enhance shipbuilding capacity and proceed with legislated increases in defense spending. The goal is to raise defense expenditures to 2 percent of GDP by fiscal year 2027, part of a broader national security strategy.
Funding and political context
Prime Minister Sanae Takaichi said the government intends to finance the package through revenue where possible, with additional government bonds covering any gaps. She emphasized that bond issuance would likely be below last year’s 42.1 trillion yen, portraying the plan as consistent with fiscal sustainability.
The supplementary budget needed to fund the measures will be compiled “swiftly,” the government said, with the aim of securing approval by year-end. Although the ruling Liberal Democratic Party does not hold a majority in the Lower House, its alliance with the Japan Innovation Party gives the bloc 231 seats, just two short of full control. Officials expect cooperation from opposition parties to advance the budget.
Market reaction raises concerns
Financial analysts warned that the stimulus could unsettle Japan’s bond markets. Jesper Koll of Monex Group told CNBC that the move is likely to “spook” investors watching government borrowing levels. Japanese government bonds have already been under pressure, with the yield on 10-year JGBs touching 1.817 percent on Thursday, the highest level since 2008. Yields eased slightly to 1.785 percent on Friday.
The latest package underscores the government’s balancing act: supporting households and growth while navigating rising debt and volatile financial conditions.
