What Takaichi Wants from Global Investors, and What She Really Thinks of Them: The Question Behind "Japan is Back"

By Kenta Sato - Economic Analyst

Foreign investors are placing a question mark over the economic policy of Prime Minister Sanae Takaichi's cabinet. Although the message is "Japan is back. Invest in Japan," the administration has taken no effective action against a deteriorating fiscal position, a weakening yen, and rising interest rates - and from some quarters, pessimistic murmurs of an approaching "Sanae shock" have begun to leak out. As prices keep climbing, public support has gradually started to drift away, yet Prime Minister Takaichi shows no sign of concern. In seeking to fundamentally overhaul the way policy has traditionally been conducted, the prime minister has raised the banner of "responsible proactive fiscal policy." What, exactly, is she aiming for, and where is she trying to lead Japan?

"Just shut your mouths and invest in me"

"Just shut your mouths! And invest everything in me." On December 1, 2025, at an international conference held in Tokyo, Prime Minister Takaichi called for investment in Japan with these words. Following a phrase also used by the late former Prime Minister Shinzo Abe, whom she reveres, she closed her speech with "Japan is back!"

Since the Takaichi cabinet took office in October 2025, the dollar-yen rate has moved toward a weaker yen and stock prices have climbed - the so-called "Takaichi trade." The administration's stance of proactive fiscal policy and continued monetary easing evoked "Abenomics," the economic policy of the Abe administration that built the longest-serving government in Japanese history, and it swelled market expectations.

There are two main junctures at which the assessment of the Takaichi cabinet by the public and the market shifted. The first was the period following February 28, when the United States and Israel attacked Iran and killed its supreme leader. The second was in July, when - amid renewed tension in the Middle East - the government finalized its "Basic Policy on Economic and Fiscal Management and Reform" (the "Honebuto" guidelines).

Prime Minister Takaichi had championed a "strong economy" even before the cabinet was formed. But while she committed herself to themes such as economic security, revision of the Imperial House Law, and cutting the number of seats in the House of Representatives, she took no effective action against the persistent surge in prices. Even after the Middle East situation deteriorated, she appeared largely indifferent to the weakening yen, long-term interest rates, and rising prices. As fighting between the United States and Israel on one side and Iran on the other escalated, a "flight to the dollar" emerged and, led by overseas players, the yen weakened further. The scale of the yen's decline was conspicuous, yet she seemed to "tolerate" it.

The second juncture came to be called the "Honebuto shock." The "Basic Policy on Economic and Fiscal Management and Reform" - known in Japan as the "Honebuto no Hoshin" - is a document the cabinet approves each summer that lays out the government's overarching economic and fiscal priorities for the year ahead and frames the compilation of the following year's budget; for markets, it is one of the clearest annual signals of where policy is headed. This year's edition pledged to draw in more than 370 trillion yen (on the order of 2.4 trillion U.S. dollars) in combined public and private investment by fiscal 2040, but the rest of the policy menu lacked freshness, and the growth strategy was so scattershot that it carried little force. A headline investment figure with little concrete substance behind it was precisely what unsettled investors.

The prime minister announced a plan to cut the consumption tax rate on food and drink items to 1% from next spring, but - as with the enormous public-private investment - the funding source remains unclear. Such an approach makes markets conscious of the risk of fiscal deterioration and invites a weaker yen and higher rates. The timing of interest-rate hikes by the Bank of Japan, said to be kept at a distance from the prime minister, is also more than enough to unsettle markets.

What the "strong economy" really means

What on earth is Prime Minister Takaichi thinking, calling for investment in Japan while appearing indifferent to market moves? And how does the administration view global investors? One often hears such questions from investors. Given that she is displaying a political posture unlike anything before, it is only natural that hope and anxiety should intermingle. From here, let us dissect the vision of the nation the administration is pursuing and consider the aims of its economic and fiscal management.

The first premise worth setting down is this: a "strong economy" means growing Japan stably while insulating it as far as possible from the influence of other countries and international conditions. The strengthening of economic security on which the prime minister is focused is part of this. To avoid the harm from Chinese export restrictions tied to a fractious Japan-China relationship, she is hurrying to strengthen ties multilaterally and with ASEAN nations. This means solidifying cooperation with countries that share values, alongside a security framework, and signals a "de-China" move on the economic and trade fronts as well.

In that sense, what the Takaichi administration is pursuing is, at home, a "break from the postwar regime" through constitutional revision, revision of the Imperial House Law, and education reform, and, abroad, a Japan First stance that begins with "de-China." Just as U.S. President Trump advances America-first negotiations and policies, Prime Minister Takaichi - while keeping the Japan-U.S. alliance as her axis - is seriously aiming to make "Japan is back" a reality.

What draws attention here is the direction of the administration's economic policy. Although the "Basic Policy" was approved by the cabinet in July, much of that menu was carried over from the era of the previous Ishiba administration; the Takaichi administration's true course will not become visible until the year-end tax reform and the drafting of the budget. The biggest point is how far she can stamp the package with her own "Takaichi colors."

"Responsible proactive fiscal policy"

In her February policy speech, the prime minister declared that she would "fundamentally transform the way policy has been conducted," adding that "the heart of that is 'responsible proactive fiscal policy.'" Domestic investment is overwhelmingly insufficient, she argued, and she would provide thoroughgoing support to promote it. In addition to "crisis-management investment" that minimizes a range of risks - economic security, food security, energy and resource security, health and medical security, national resilience, cybersecurity, and more - she would put force behind "growth investment" that brings advanced technologies such as AI, semiconductors, and shipbuilding into bloom, in a scenario that connects to Japan's economic growth.

The aim is that this, in turn, increases people's employment and incomes, improves the consumption mindset, lifts business earnings, and builds a "strong economy" in which tax revenues rise naturally without raising tax rates. By realizing such a virtuous cycle, she would enlarge the "pie" of the Japanese economy and achieve wage growth that can withstand rising prices. To break free from years of excessive fiscal austerity, she will not hesitate to deploy fiscal spending, concentrating on "investment in the future."

The prime minister explains that fiscal policy which pursues growth while still paying heed to fiscal discipline is precisely "responsible proactive fiscal policy," and she positions her own reforms as "a major reform spanning roughly two years." To state the essence up front: for "about two years," matters remain in process, and although "the pain of reform" may accompany that period, this has already been factored in.

Among the "reforms" to economic and fiscal policy is the realization of multi-year budgets that do not rely on drafting supplementary budgets, as well as a review of special taxation measures and subsidies, which had rarely faced strict scrutiny in the past. So that this is not taken as reckless policy that would damage the market's confidence, a dedicated office will be set up under the finance minister, and strategic fiscal spending will be carried out only after administrative and fiscal reform has been advanced.

Of course, the fiscal authorities have long sounded alarms to the prime minister's office - that loose fiscal policy would "increase the debt per citizen" and "invite a further rise in long-term interest rates." But the prime minister and the core of the administration are unmoved: "What matters is how much debt there is relative to income," as one close aide puts it. What counts, in their view, is not increasing the balance of government bonds and local bonds as a share of GDP, and this is precisely the means of avoiding harm to the economy.

And through the review of special taxation measures and subsidies, the administration intends to issue "exit recommendations" - no longer keeping alive, on a drip of subsidies as in the past, the low-productivity and outdated sectors that would ordinarily have to withdraw from the market. Concretely, it will roll out reforms of labor regulations, industrial subsidies, and the like. Realizing such reforms while devoting energy to other fields where growth can be expected is what the Takaichi administration is aiming for.

How the administration reads the yen

There is one more point worth touching on: the Takaichi administration's understanding of "foreign exchange." As noted above, the fiscal authorities are sensitive to moves in　currencies and interest rates. But it is fair to say that the prime minister's understanding differs.

During the LDP leadership election in September 2024, Prime Minister Takaichi called a weak yen "a chance for export industries to export more and more," explaining that the surplus in the Foreign Exchange Fund Special Account grows as a result. This past January she also said: "People say a weak yen is bad, but for export industries it is a huge opportunity. What benefits even more from a weak yen is the Foreign Exchange Fund Special Account. Its management is flush right now."

These remarks were dismissed as evidence that "Takaichi is economically clueless" and "understands nothing about markets." But Yoichi Takahashi, an economist regarded as one of the prime minister's economic-policy brains, explained on a television program on May 4, 2024 that "the Japanese government is the biggest beneficiary of a weak yen," describing how a weak yen produces foreign-exchange gains on the dollars the Japanese government holds. This past July, too, he argued in the media that it is a mistake to say long-term rates have risen out of concern over fiscal deterioration; rather, a weak yen lifts the nominal economic growth rate, and rates are rising even as tax revenues climb. His point is that there is no problem so long as the "earnings" exceed the rise in interest payments.

It is true that, to prevent an excessively weak yen, the Japanese and U.S. governments carried out coordinated yen-buying intervention on July 31 - the first yen-buying intervention in 28 years, since 1998. But this was aimed at restraining speculative moves, and cannot necessarily be read as the Takaichi administration moving to "correct the weak yen."

President Trump said that "Japan's yen had weakened and it was asking for a little help." But with U.S. midterm elections looming in November, Washington's real motive was most likely to avoid a further rise in Japan's long-term rates spilling over to hurt the United States. To repeat, contrary to the concerns of the fiscal authorities, few around Prime Minister Takaichi subscribe to the "weak yen as villain" thesis. So long as the prime minister maintains her stance of proactive fiscal policy and continued monetary easing, the tendency toward a weaker yen should persist.

The contradiction, and the test ahead

That said, an excessively weak yen fuels rising prices. Should that happen, it strikes at people's livelihoods. Even cutting the consumption tax rate on food and drink to 1% from next spring will see its effect blunted if inflation is accelerating. The result could be a vicious cycle in which only the fiscal burden remains. This is what might be called the "contradiction" of the administration's economic policy. And if a weaker yen, higher rates, and rising prices advance further, the cabinet's approval ratings may fail to stop falling, and headwinds can be expected in next spring's unified local elections and other contests.

The prime minister single-mindedly pursues "Japan First" and is largely indifferent to currency moves, but if she loses the high approval ratings that have underpinned her government, she could lose the centripetal force needed to realize her policies. When that moment comes, will Ms. Takaichi rush to adjust her policies, or push ahead in line with her own convictions? As investors at home and abroad watch closely, the prime minister's true resolve will be tested in the run-up to the year-end tax reform and the drafting of next fiscal year's budget.