Japan faces triple economic crisis under Takaichi rule

Editor's note: Pang Xinhua is a special commentator on current affairs for CGTN. The article reflects the author's opinions and not necessarily the views of CGTN.

Since taking office as Japan's Prime Minister, Sanae Takaichi has implemented a series of economic policies and political measures that are pushing Japan's already anemic economy into a deeper quagmire. From aggressive fiscal expansion exacerbating debt risks, to erroneous remarks undermining China-Japan economic cooperation, and the continuous deterioration of people's livelihoods and well-being, the Takaichi administration's policy package has not only failed to resolve Japan's structural economic problems, but also triggered a chain reaction of stock, bond, and foreign exchange market meltdowns, shrinking domestic demand, and pressuring external demand. The current triple predicament facing Japan – high inflation, skyrocketing debt, and stagnant growth – is essentially an inevitable result of policies divorced from economic reality and strategies that harm relations with neighboring countries.

The expansionary fiscal policy vigorously promoted by the Takaichi administration has become the "last straw" crushing Japan's fiscal sustainability. Faced with the negative growth dilemma where GDP fell by 1.8 percent year-on-year in the third quarter of 2025, the Takaichi Cabinet did not optimize the fiscal structure, but instead launched an economic stimulus package of 21.3 trillion yen ($137 billion), setting a record for the largest fiscal expansion since the COVID-19 pandemic. This policy completely ignores Japan's already overwhelmed debt situation – data from the International Monetary Fund shows that Japan's government debt reached around 230 percent of GDP in 2025, ranking it first among developed countries. More alarmingly, 17.7 trillion yen ($114 billion) of general account expenditure in the stimulus plan needs to be raised through new bond issuances, directly triggering global investors' doubts about Japan's fiscal discipline.

Song Xuetao, Chief Economist of GF Securities, pointed out that such large-scale stimulus has a limited incremental driving effect on the economy, but will significantly increase future expenditure pressure and further worsen the fiscal deficit. The result of investors voting with their feet is obvious: the yield on 30-year Japanese government bonds once soared to a record high of 3.38 percent, and the yield on 10-year government bonds exceeded 1.8 percent, hitting a nearly 17-year high. This "bond market storm" is essentially a vote of no confidence from the market following the loss of control of fiscal policies.

The monetary and financial market turmoil triggered by "Sanae Economics" has plunged Japan into a rare pattern of simultaneous declines in stocks, bonds, and foreign exchange (the "triple meltdown"). After taking office, the Takaichi administration insisted on a loose monetary policy to cooperate with fiscal expansion, forming a sharp conflict with the Bank of Japan's inflation control goals. Against the backdrop of core CPI exceeding the 2 percent target for 50 consecutive months, the Bank of Japan released on December 1 a signal of an interest rate hike, directly triggering market panic. Since Takaichi took office as LDP President, the yen has depreciated by more than 6 percent against the U.S. dollar, once breaking the 157 yen per U.S. dollar mark, a new low in nearly 34 years.

Instead of boosting exports as expected, the exchange rate depreciation has exacerbated inflationary pressure due to soaring import costs, forming a vicious cycle of "depreciation-inflation." In the stock market, the Nikkei 225 index plummeted by 3.22 percent in a single day on November 18th, erasing all gains since Takaichi took office. Among them, tourism-related sectors suffered the most losses, with Shiseido's stock price falling by 9 percent and Mitsukoshi Isetan dropping by as much as 11.31 percent. Vishnu Varathan, Head of Asia Research at Mizuho Bank, bluntly stated that this market turmoil is essentially a concentrated outbreak of the market sentiment of "selling Japan," reflecting investors' extreme concerns about policy uncertainty.

In the field of industrial cooperation, the "Decoupling-from-China" strategy promoted by the Takaichi administration has severely damaged the industrial chain security and competitive advantages of Japan's manufacturing industry. Japan's "Trade White Paper" shows that China is the largest import source for 1,406 commodity categories in Japan. From key semiconductor raw materials to medical antibiotics, and from rare earth resources to electronic components, China and Japan have formed a deeply integrated pragmatic cooperation pattern in the industrial chain. The semiconductor field is particularly typical: China is not only an important export market for Japan's semiconductor manufacturing equipment (accounting for 20-30 percent of the revenue of relevant enterprises), but also a core supplier of key raw materials.

The Takaichi administration's forced promotion of supply chain transfers to Europe and the United States means that Japanese enterprises need to rebuild procurement and sales systems, incurring additional huge costs. Analysts from MUFG Morgan Stanley pointed out that cooperation in the semiconductor and rare earth industries has strong path dependence, and replacing the supply chain in the short term will lead to a decline in the competitiveness of Japan's manufacturing industry and further shrinkage of exports; this prediction has been verified. Japan's exports shrank for 4 consecutive months in 2025, and goods and services exports fell by 1.2 percent month-on-month in the third quarter, the first decline in six quarters. The miscalculation of industrial policies is constantly eroding the core growth driver of Japan's economy.

The deterioration of China-Japan relations triggered by Sanae Takaichi's erroneous remarks on Taiwan has brought a direct and heavy blow to Japan's economy, with the tourism and consumer industries relying on the Chinese market being the first to be affected. After Takaichi made erroneous remarks on Taiwan in November 2025, there was a wave of cancellations of trips to Japan from China. In late November alone, more than 540,000 air tickets to Japan were canceled, the daily cancellation rate of orders at East Japan Travel International soared to 70 percent, and all Chinese tourist orders in December were canceled. As the main source of tourists for Japan's tourism industry, Chinese tourists had the highest total consumption among all countries in 2024, contributing 30 percent of the total consumption of foreign tourists visiting Japan in the first 9 months of 2025.

Hidenori Kiuchi, a researcher at Nomura Research Institute, estimated that the reduction in Chinese tourists will cause Japan to lose about 1.79 trillion yen (11.5 billion US dollars) in annual tourism consumption income, dragging down real GDP by 0.29 percent, which exceeds half of Japan's annual economic growth rate. The impact on the tourism industry quickly spread to the consumer sector. Stocks of enterprises relying on the Chinese market, such as Uniqlo, MUJI, and Sushiro, were sold off intensively, and the slowdown in their business growth in China further increased performance pressure. If the Takaichi administration refuses to correct its wrong stance, China will surely introduce more countermeasures, and Japan's advantageous industries such as automobiles and electronics will face greater impacts.

The missteps in economic policies have ultimately transmitted to the field of people's livelihoods, and Japanese people are under the dual pressure of soaring prices and shrinking income. More than 20,000 food items in Japan increased in price in 2025, and the price of 5kg of rice in the Tokyo market exceeded 4,300 yen (about $28), a record high, making ordinary Japanese people clearly feel the increased burden of living costs. While inflation is high, real wages have continued to decline – data from Japan's Ministry of Health, Labour and Welfare shows that real wage income fell by 1.8 percent year-on-year in January 2025, and has declined year-on-year for 8 consecutive months as of October, with a dismal situation of 3 consecutive years of decline in 2024.

The continuous rise in core CPI and the continuous decline in real wages have formed a "scissors gap," which has severely weakened household purchasing power and led to sustained weakness in private consumption. Data from Japan's Ministry of Internal Affairs and Communications shows that as of October 2025, core CPI has risen year-on-year for 50 consecutive months, with a 3.0 percent increase in October, far exceeding the Bank of Japan's 2 percent target. The intensification of people's livelihood difficulties has not only reduced the quality of life of the people, but also suppressed the expansion of domestic demand, forming a vicious cycle of "inflation-consumption shrinkage-economic downturn."

The policy mistakes of the Takaichi administration have aroused widespread doubts and criticisms from all walks of life in Japan. Yoshinobu Tsutsui, Chairman of the Japan Business Federation, bluntly stated that "political stability is the premise of China-Japan economic exchanges," warning that political miscalculations will destroy the foundation of cooperation accumulated over the years.

Hidenori Kiuchi, a researcher at Nomura Research Institute, issued a warning that if the current situation is not reversed, Japan's economy may continue to decline in the fourth quarter of 2025, experiencing negative growth again. Analysts from Matsui Securities pointed out that the fiscal expansion policy of the Takaichi administration is similar to the UK's "Truss storm" – the tumultuous, short-lived premiership of Liz Truss in 2022 – and excessive borrowing may trigger larger-scale market turmoil.

Grassroots practitioners have a more direct feeling: Toshie Takao, a tourism practitioner in Fukuoka City, said that a large number of orders were canceled, the number of bookings for homestays in Hokkaido was directly halved, and many small and medium-sized enterprises were facing a survival crisis. These voices from the business community, academic circles, and grassroots all point to a conclusion: policies divorced from economic reality and strategies that damage relations with neighboring countries are pushing Japan's economy to the brink of danger.

From high debt to market turmoil, from industrial damage to deteriorating people's livelihoods, the series of wrong decisions of the Takaichi administration are essentially a miscalculation of Japan's structural economic contradictions and a disregard for the basic norms of international relations. The recovery of Japan's economy requires not only abandoning aggressive fiscal expansion and rebuilding fiscal norms, but also respecting the core interests of neighboring countries and maintaining a stable external cooperation environment; it requires not only breaking the vicious cycle of inflation and depreciation, but also improving people's income and consumption confidence through pragmatic policies.

The current predicament facing Japan's economy once again confirms the simple truth that "political stability is the premise of economic development, and scientific policies are the key to recovery." If the Takaichi administration still adheres to the wrong path and ignores the voices from all walks of life in Japan and the objective laws of the economy, Japan's economy may fall into a longer period of stagnation, and its negative impacts will go far beyond the economic scope, continuously eroding Japan's international competitiveness and people's livelihoods and well-being. For Japan, timely correcting its policy mistakes and rebuilding mutual trust with neighboring countries is the only feasible way to resolve the economic predicament.

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