Takaichi Bets Big on Growth, Reshuffle and All - and the Bond Market Sets the Price

by Kenichi Ogura - Former Chief Editor of PRESIDENT (Japan’s No.1 business magazine)

Japan's 10-year government bond yield touched 3.025% on September 15, a level not seen in about 30 years. Two days later, Prime Minister Sanae Takaichi reshuffled her cabinet, replacing 10 ministers - but kept the people responsible for her expansionary economic policy exactly where they were.

Satsuki Katayama remains finance minister. Minoru Kiuchi stays in charge of economic and fiscal policy and the government's growth strategy. Ryosei Akazawa continues as minister of economy, trade, and industry. The foreign, defense, and economic-security portfolios were left untouched as well.

Why the personnel choices matter

The personnel choices matter because the fiscal argument in Tokyo has changed. Japan is no longer debating expansionary policy with government bond yields close to zero. It is doing so with the 10-year yield above 3%, another large tax cut on the table, and the Bank of Japan moving away from the ultra-easy monetary policy that defined much of the past decade. The reshuffle leaves the economic team to pursue the same policy under much less forgiving market conditions.

Foreign investors can easily misread Takaichi. She is a conservative politician, but the economic program bears little resemblance to Margaret Thatcher's effort to shrink the state through privatization, deregulation, and tighter control of public spending.

Closer to Macron than Thatcher

The more useful comparison is Emmanuel Macron's France 2030.

Macron's government committed 54 billion euros over 5 years to reindustrialization, innovation, and strategic technologies. The French state has backed nuclear technology, semiconductors, AI, aerospace, biotechnology, and other industries it regards as important to economic sovereignty. Half of France 2030 spending is earmarked for decarbonization. The French Treasury describes the program as a way to strengthen industrial competitiveness, emerging technologies, and technological sovereignty.

Tokyo is now working from a similar playbook, though on a different scale and with different fiscal constraints.

Japan's 370 trillion yen investment map

The Japan Growth Strategy approved on July 21 identifies 17 strategic fields and 62 major products and technologies. The government wants cumulative public and private investment in those areas to exceed 370 trillion yen through fiscal 2040, which ends in March 2041. AI and semiconductors, digital infrastructure, and cybersecurity account for a large part of the planned investment; biotechnology, advanced medicine, defense, aerospace, shipbuilding, and advanced materials are also on the list.

The 370 trillion yen figure needs careful handling. It is not a government spending commitment. It is a cumulative public-private investment target, and the final burden on taxpayers has not been fixed. Even advisers to the government have called for clearer mechanisms to evaluate individual investments and their contribution to growth.

What is already visible is the direction of policy. Tokyo intends to do more than improve the business environment and wait for private capital to respond. It is choosing industries and using public money, regulation, infrastructure, and government-created demand to pull private investment behind them.

For investors looking for historical parallels, this is closer to French dirigisme than Thatcherism.

Working on supply and demand at once

Macron is not a perfect comparison. He entered office in 2017 with labor-market reforms and business-friendly tax changes before industrial policy became a larger part of his agenda. Takaichi starts from a different diagnosis: Japan invested too little, domestic demand remained too weak and fiscal restraint lasted too long.

That difference becomes obvious in her tax policy.

On September 15, the cabinet approved an outline to cut the consumption tax on food from 8% to 1% for 2 years beginning in April 2027. Reuters estimates the annual revenue loss at roughly 5 trillion yen. The government says it will not finance the measure with deficit-financing bonds, yet the full funding plan has been left for the fiscal 2027 budget process.

France 2030 is primarily an attempt to change the supply side of the economy. Takaichi is trying to work on supply and demand at the same time. Strategic investment is supposed to raise Japan's productive capacity over the next decade; the food-tax cut puts purchasing power into households much sooner.

Calling the entire package Keynesian would also miss the point. Traditional demand management does not require a government to decide that semiconductors, AI, shipbuilding or defense technology deserve special treatment. Takaichi's model mixes fiscal stimulus with an unusually explicit industrial policy.

What it means for Japanese equities

That combination has obvious implications for Japanese equities, but "government-backed" should not be confused with "cheap" or even "profitable."

In semiconductors, companies such as Tokyo Electron Limited <8035>, Advantest Corporation <6857>, and Disco Corporation <6146> sit in an industry the government has explicitly placed near the center of its investment strategy. The policy backdrop supports capital spending and domestic semiconductor capacity. Earnings will still depend on orders, global chip demand, and whether returns justify the enormous capital being deployed.

The same distinction applies to defense and heavy industry. Mitsubishi Heavy Industries, Ltd. <7011>, Kawasaki Heavy Industries, Ltd. <7012>, and IHI Corporation <7013> have direct exposure to areas where government procurement can create demand rather than merely subsidize investment. For these companies, the more useful numbers are orders, backlog, and margins, not the headline size of the government's 2040 investment target.

Ishin joins the cabinet

One change in the cabinet has attracted more attention than its economic significance warrants. The Japan Innovation Party, known in Japan as Ishin, has joined the cabinet for the first time. Hiroshi Nakatsuka, a former mayor of Hirakata in Osaka Prefecture and until now Ishin's secretary-general, has taken the deregulation portfolio. Ishin had previously supported the coalition from outside the cabinet.

Ishin describes deregulation and administrative reform as core party policies. That sounds important for a government otherwise inclined toward intervention. No major national supply-side reform accompanied Nakatsuka's appointment, however. His portfolio should be judged by the legislation that follows, not by the symbolism of Ishin entering the cabinet.

The party's immediate political interests also lie heavily in Osaka, its electoral base.

Takaichi herself made the relationship unusually explicit in June. After meeting Ishin leader and Osaka Governor Hirofumi Yoshimura, she called legislation for a "secondary capital" outside Tokyo one of the "centerpieces" of the coalition agreement. She specifically praised the project, including the Osaka Metropolis concept, as a major reform of Japan's governing structure and a way to create an economic center outside the Tokyo region.

The political interests are easy to see. Ishin wants central-government cooperation for its Osaka agenda; Takaichi needs Ishin's votes in the Diet, Japan's parliament, to move national legislation.

For the moment, that makes Ishin more relevant to parliamentary arithmetic than to a model of Japan's macroeconomic policy. A serious national deregulation program would change that assessment. One cabinet seat has not done so.

The real constraint is the bond market

The harder constraint sits in the bond market.

The 10-year JGB yield reaching 3.025% on September 15 coincided with concern over the unfunded portion of the food-tax plan, but fiscal policy was not the only force at work. Inflation, oil prices, expectations for Bank of Japan policy, and overseas yields also matter. The useful point is simpler: the cost of financing Japanese government debt has changed dramatically.

Katayama's retention matters in that setting. A former Ministry of Finance official, she provides continuity at the ministry responsible for the budget, government debt management, and foreign-exchange policy. She has also been involved in Tokyo's coordination with Washington over the yen. On September 17, after being reappointed, Katayama again said Japan would respond appropriately to excessive currency moves.

Her presence does not solve the fiscal arithmetic. Nor does the government's label for its policy, "responsible and proactive public finances."

Fiscal 2027 will tell the story

The arithmetic arrives with the fiscal 2027 budget.

Three numbers will matter more than another declaration of Japan's growth ambitions: new JGB issuance, the actual funding of the food-tax cut, and the amount of public money sitting behind the 370 trillion yen investment road map.

Takaichi's industrial policy makes Macron a better comparison than Thatcher. Her willingness to support household demand makes even Macron an incomplete one. Japan is attempting something more unusual: an activist industrial state, expansionary fiscal policy, and monetary normalization at the same time.

The 370 trillion yen target tells investors where Takaichi wants capital to go. The JGB market will tell her what that ambition costs.