"I have been committed to steadily fulfilling my promises over the past year."
On October 21, Japan's Prime Minister Sanae Takaichi marked her first anniversary in office, emphasizing that inflation has been kept at the lowest level among G7 nations. She claimed that her signature policy of 'responsible active fiscal policy' has led to increases in wages, stock prices, and GDP. However, she acknowledged, "I take seriously that many people do not feel the results sufficiently," urging the passage of a bill that includes a two-year reduction in the consumption tax on food and subsidies.
The gap between Takaichi's claimed achievements and the public's perception is evident in economic indicators, market reactions, and diplomatic relations over the past year.
Japan's real wages have increased for eight consecutive months, the longest streak in nine and a half years. Since Takaichi's administration began, the average monthly growth rate has been 1.0%, contrasting sharply with the first years of the long-serving Abe administration (-0.9%) and the Koizumi administration (-0.7%). This year's spring wage negotiations saw wage increases in the 5% range for the third consecutive year, and private sector capital investment for 2025 is projected to reach a record high of 128 trillion yen.
In response to rising oil and naphtha supply concerns following the U.S. attack on Iran this spring, some government and ruling party members suggested energy conservation measures. However, Takaichi opted to postpone such requests, stating, "I do not want to cool down the economy," and instead implemented gasoline subsidies and support for electricity and gas bills to keep prices down.
With inflation being restrained, real wages, calculated by subtracting inflation from nominal wages, can improve accordingly. The Nihon Keizai Shimbun (Nikkei) assessed that the 'household surplus' Takaichi has emphasized is still at a 'government-supported' stage. Adding the consumption tax reduction set to begin in April next year could further increase fiscal burdens.
The markets have reacted sensitively to rising interest rates and currency fluctuations. Long-term interest rates rose from around 1.6% at the start of Takaichi's administration to as high as 3.1% in late September, marking a nearly 30-year peak. The Asahi Shimbun analyzed that concerns over funding for active fiscal policy and tax cuts contributed to the sharp rise in interest rates. The yen also fell from around 151 yen per dollar to 163 yen in July, reaching its lowest level in 39 years.
The increase in long-term interest rates could raise costs for mortgage and corporate loans, as well as the government's interest burden on national debt. While a weaker yen may benefit export companies' price competitiveness, it raises costs for businesses and households that import raw materials and energy.
Hideo Kumano, chief economist at ABC Economic Research Institute, warned that "large-scale fiscal injections could create demand and fuel inflation."
To curb soaring long-term interest rates, Takaichi has turned to a solution reminiscent of former Prime Minister Abe's era: having the Bank of Japan (BOJ) purchase government bonds in large quantities to lower rates.
According to the Asahi, Takaichi expressed during a meeting with BOJ Governor Kazuo Ueda in May that she did not oppose a rate hike (from 0.75% to 1.0%) but requested an increase in government bond purchases. Government officials indicated this was a strategy to raise short-term rates while preventing long-term rates from rising.
However, the BOJ did not comply. Unlike in 2013, when it engaged in massive bond purchases to escape deflation, the current priority is to control inflation and the weak yen. The BOJ has continued to reduce bond purchases and raised rates three times since Takaichi's administration began.
The U.S. has also applied brakes. U.S. Treasury Secretary Scott Vessen announced in early September a public call to end the so-called 'reflation policy' that involves injecting government funds and maintaining low interest rates to stimulate the economy. President Donald Trump also expressed concerns about the weak yen during a summit in September.
Since taking office, Takaichi has engaged in nine discussions with President Trump, investing more effort into U.S. relations than previous administrations. However, the U.S. is also grappling with the burdens of rising bond yields, making it difficult to accommodate Japan's situation.
As a result, Takaichi's rhetoric has begun to shift. In a speech to the Diet, she mentioned the term 'market' five times. On the 7th, she stated that if the market moves unexpectedly, she would reconsider expenditures and revenues, and the following day in the House of Representatives, she declared, "This is not a phase that requires so-called reflation policy." A government official noted, "She is sending a message that she is concerned about the market while changing her words."
Whether this change in rhetoric will lead to an actual policy shift remains uncertain. Economist Kumano pointed to a plan for over 370 trillion yen in public-private investment by 2040, stating, "The Prime Minister's denial of reflation is merely lip service to soothe the market; in reality, it is still a reflation policy." He suggested that the true nature of the reflation policy would be revealed in the upcoming budget proposal and the replacement of two members of the BOJ's Policy Board who will decide on interest rates next July.
The Prime Minister's greatest asset is her approval rating. According to a Nikkei survey, her cabinet approval rating was 74% at the start of her term and remains at 62% now. This is 21 percentage points higher than the ruling Liberal Democratic Party's approval rating (as of September), indicating stronger personal support for Takaichi than for her party.
However, high approval ratings do not necessarily translate into policy support. An Asahi survey found that the top reason for support shifted from policy immediately after her inauguration to "appearing better than other cabinets" recently. This suggests a growing tendency to support her due to a lack of alternatives. The Nikkei also assessed that Takaichi, lacking a solid foundation within her party, is relying on her approval ratings to lead both the party and the Diet.
Yet, high approval ratings alone cannot overcome the hurdle in the Upper House. The ruling coalition of the Liberal Democratic Party and the Japan Innovation Party is four seats short of a majority in the Upper House. This year's budget proposal also took until April 7 to pass the Upper House, extending beyond the fiscal year. The consumption tax reduction bill that Takaichi has proposed to alleviate household burdens will also be difficult to process without cooperation from the opposition.
Japan's relations with China have further soured. Following Takaichi's remarks about intervention in Taiwan, China responded by halting imports of Japanese seafood, imposing export restrictions, and advising against travel and study in Japan. From January to August this year, the number of Chinese visitors to Japan decreased by 56% compared to the previous year.
While Takaichi has met with President Trump nine times, she has only met with President Xi Jinping once since taking office, and communication has ceased. As she focuses on strengthening ties with the U.S., relations with China have deteriorated, increasing diplomatic burdens.
A machinery manufacturer in Gifu Prefecture, who has been a member of the Liberal Democratic Party for about 50 years and was an enthusiastic supporter of Takaichi, expressed disappointment, stating, "I am a bit disappointed." He noted losses of several hundred million yen due to the weak yen and that customs clearance from China, which used to take one to two weeks, has now extended to a month. This illustrates how Takaichi's economic policies and diplomacy are backfiring on her supporters.
Takaichi is set to attend the Asia-Pacific Economic Cooperation (APEC) summit in Shenzhen, China, in November. It remains uncertain whether she will have the opportunity to meet with President Xi.
As the year comes to a close, Takaichi faces the task of drafting a budget that addresses both tax cut funding and defense spending. After a year in office, her administration must now deliver tangible results that the public can feel in its second year.
* This article has been translated by AI.
Copyright ⓒ Aju Press All rights reserved.