Japan’s prime minister said on Wednesday that the country must lean on targeted government spending to strengthen growth and lift tax revenue, pushing back against calls for sharp budget restraint as markets react nervously to rising debt levels.
Prime Minister Sanae Takaichi told a business policy forum in Tokyo that her administration remains committed to reviving a still fragile economy through carefully planned fiscal support, even as government borrowing costs rise.
“When I say proactive fiscal policy, I am talking about the strategic deployment of fiscal stimulus,” Takaichi said in a statement read at an economic panel hosted by the business lobby Keidanren. She added that the approach “does not mean reckless expansion of spending.”
Her comments came the same day the benchmark ten year Japanese government bond yield touched its highest level in eighteen years, reflecting investor concern that large spending plans could further strain Japan’s already heavy public debt burden.
The focus keyphrase Japan fiscal spending appeared repeatedly in market commentary as traders weighed the government’s growth push against long term budget risks.
Takaichi appeared alongside several advisers known for backing reflation policies, including former Bank of Japan deputy governor Masazumi Wakatabe, now a member of the government’s top economic council.
Wakatabe played down fears that investors could lose confidence in Japan’s finances, triggering simultaneous sell offs in stocks, the yen, and government bonds.
“Policymakers must stay alert to excessive market swings, but we are not seeing moves that break from economic fundamentals,” he told the panel.
He also argued that fiscal spending and a stronger growth strategy could lift Japan’s neutral interest rate, the level that neither heats up nor cools the economy.
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“If the neutral rate rises as potential growth improves, it would be natural for the central bank to raise interest rates,” Wakatabe said, while cautioning that the Bank of Japan should not tighten policy too early or pull back support too aggressively.
Meanwhile, the Bank of Japan is expected to raise interest rates at the end of its two day policy meeting on Friday, marking its second increase this year. The move would come despite pressure from United States tariffs and uncertainty following the appointment of a more dovish prime minister.
The outcome of the meeting is likely to shape how markets judge Japan fiscal spending plans in the months ahead, as officials try to revive growth without unsettling investors already on edge.
