Prime Minister Sanae Takaichi reversed course on additional government spending on Monday, announcing a 3 trillion yen ($19 billion) supplementary budget to soften the impact of higher fuel prices and a weaker yen on Japanese households. The package marks the first significant fiscal addition of her tenure and contradicts her own remarks earlier this spring that no extra outlays would be needed before the autumn.
The plan, which Takaichi presented at a hastily called press conference in Tokyo, will subsidise gasoline and diesel at the pump, extend electricity-bill rebates through the end of the year and direct one-off payments to lower-income households. About a third of the package is earmarked for small and medium-sized enterprises facing higher input costs from imports priced in dollars.
Takaichi said the supplementary budget would be financed primarily through deficit-financing bonds, but that stronger-than-expected tax revenues, non-tax income and underspending elsewhere would eliminate the need for roughly 3 trillion yen of bond issuance previously scheduled for completion by June. "We believe this measure can be implemented without affecting the government bond market," she said.
The reversal followed several weeks of intensifying political pressure. The Iran war pushed Brent crude above $100 a barrel for much of April and May before easing this week on news of a US-mediated ceasefire framework, and the yen weakened past 159 to the dollar on Friday. Inflation excluding fresh food rose 3.4 per cent in April, the fastest pace in 17 months, and consumer confidence indicators have softened.
Public support for Takaichi’s cabinet remains comparatively high at 59.4 per cent in the most recent Jiji Press survey, but the gap between her approval rating and her party’s polling has widened. Within the LDP, factional groups aligned with former prime minister Fumio Kishida have begun lobbying for a more expansionary stance on welfare and energy subsidies ahead of next year’s upper-house election.
Investors initially shrugged off the budget news. The Topix closed up 0.3 per cent on Monday and 10-year Japanese government bond yields nudged up by less than a basis point to 1.94 per cent. The Bank of Japan, which left rates unchanged at its April meeting, is expected to keep its policy stance steady through the summer; Governor Kazuo Ueda has signalled that any further tightening will await clearer signs that wage growth is holding above 3 per cent into the autumn shunto round.