Japan Introduces $135 Billion Stimulus to Combat Inflation and Yen Depreciation

Post by : Bianca Suleiman

In a bold move, Japan's newly appointed Prime Minister Sanae Takaichi has announced a comprehensive stimulus package worth 21.3 trillion yen ($135 billion) designed to alleviate the economic pressures faced by households and businesses in light of escalating inflation. This extensive initiative encompasses energy subsidies, tax cuts, and various forms of support aimed at benefiting the average consumer.

This announcement comes shortly after Takaichi took office, following a brief term by Shigeru Ishiba, who faced widespread public dissatisfaction over increasing living expenses. The government's objective with this stimulus is to provide immediate economic relief, but it has raised alarms regarding Japan's already significant public debt levels.

Market reactions were swift, with government bond yields hitting unprecedented highs and the yen depreciating against the dollar. A weaker yen raises import costs for Japan, which is heavily reliant on foreign energy, food, and raw materials. Finance Minister Satsuki Katayama hinted that the administration might intervene if foreign exchange fluctuations become too volatile.

Recent data reveals that core inflation — not including fresh food — increased to 3.0% year-on-year in October, up from 2.9% in September. Notably, rice prices surged by 40% compared to the previous year, emphasizing the economic difficulties faced by ordinary households. Additionally, Japan's economy contracted by 0.4% in the third quarter of 2025, a notable downturn for the first time since early 2024.

Further complicating the economic landscape is Japan's escalating diplomatic friction with China. Takaichi's remarks regarding potential military assistance to Taiwan in the event of an attack have led to China summoning Japan's ambassador and warning its citizens against travel to Japan. Unverified reports suggest Beijing may also halt imports of Japanese seafood, a situation that neither nation has officially confirmed. Tensions have intensified around the Senkaku/Diaoyu Islands, a long-standing source of conflict in the East China Sea.

Amidst these challenges, Takaichi has reiterated the necessity of a “responsible and proactive fiscal policy,” emphasizing the importance of providing relief to citizens facing skyrocketing costs.