When Sanae Takaichi secured the leadership of Japan’s ruling Liberal Democratic Party (LDP) last Saturday, she did more than just break the country’s highest glass ceiling, positioning herself as Japan’s first female prime minister. She also ushered in a new era of economic uncertainty, pledging to revive growth with a policy prescription that appears to be the inverse of her self-proclaimed hero, the late Margaret Thatcher.
Takaichi, 64, a fiercely conservative former Economic Security Minister, has often drawn parallels to the “Iron Lady” of Britain, citing Thatcher’s “strong character and convictions.” Yet, on the critical front of fiscal policy—the very area where Thatcher’s legacy of austerity and fiscal discipline was defined—Takaichi is a radical departure. She is a “fiscal dove” advocating for a new wave of aggressive government spending and debt.
The new Prime Minister-in-waiting is inheriting an economy still struggling to emerge from three decades of stagnation, commonly referred to as the “Lost Decades.” Since the collapse of its asset price bubble in the early 1990s, Japan has seen nominal GDP fall, real wages decline, and its share of world GDP shrink dramatically. The core challenge remains structural: a rapidly aging and shrinking population, which has led to a declining workforce and ballooning social security costs that now consume a third of the national budget.
The Return of ‘Abenomics’
Takaichi’s economic blueprint, sometimes dubbed “New Abenomics” or “Sanaenomics,” is a tribute to her political mentor, the late Prime Minister Shinzo Abe. It calls for an expansionary monetary and fiscal policy, an echo of Abe’s three-pronged strategy designed to conquer deflation.
In a key difference from her namesake, Takaichi plans to unleash a fresh torrent of “bold crisis management and growth investment.” This heavy government spending, which she has suggested could be financed by issuing new government bonds, targets strategic sectors like artificial intelligence, semiconductors, and defense. She has also proposed tax cuts and higher spending to alleviate the rising cost of living that has eroded household savings and depressed consumer sentiment.
The markets reacted with cautious volatility. While the Nikkei 225 Index initially rose to record highs on the expectation of more accommodative fiscal policy, the bond market signaled alarm. Fears over a lack of fiscal discipline caused the yield on the 30-year Japanese government bond (JGB) to rise, suggesting that “bond vigilantes” are circling one of the world’s most indebted nations, where public debt is already over 260 percent of GDP.
Can ‘Japan’s Margaret Thatcher’ Reverse Decades of Lost Growth?
TOKYO—When Sanae Takaichi secured the leadership of Japan’s ruling Liberal Democratic Party (LDP) last Saturday, she did more than just break the country’s highest glass ceiling, positioning herself as Japan’s first female prime minister. She also ushered in a new era of economic uncertainty, pledging to revive growth with a policy prescription that appears to be the inverse of her self-proclaimed hero, the late Margaret Thatcher.
Takaichi, 64, a fiercely conservative former Economic Security Minister, has often drawn parallels to the “Iron Lady” of Britain, citing Thatcher’s “strong character and convictions.” Yet, on the critical front of fiscal policy—the very area where Thatcher’s legacy of austerity and fiscal discipline was defined—Takaichi is a radical departure. She is a “fiscal dove” advocating for a new wave of aggressive government spending and debt.
The new Prime Minister-in-waiting is inheriting an economy still struggling to emerge from three decades of stagnation, commonly referred to as the “Lost Decades.” Since the collapse of its asset price bubble in the early 1990s, Japan has seen nominal GDP fall, real wages decline, and its share of world GDP shrink dramatically. The core challenge remains structural: a rapidly aging and shrinking population, which has led to a declining workforce and ballooning social security costs that now consume a third of the national budget.
The Return of ‘Abenomics’
Takaichi’s economic blueprint, sometimes dubbed “New Abenomics” or “Sanaenomics,” is a tribute to her political mentor, the late Prime Minister Shinzo Abe. It calls for an expansionary monetary and fiscal policy, an echo of Abe’s three-pronged strategy designed to conquer deflation.
In a key difference from her namesake, Takaichi plans to unleash a fresh torrent of “bold crisis management and growth investment.” This heavy government spending, which she has suggested could be financed by issuing new government bonds, targets strategic sectors like artificial intelligence, semiconductors, and defense. She has also proposed tax cuts and higher spending to alleviate the rising cost of living that has eroded household savings and depressed consumer sentiment.
The markets reacted with cautious volatility. While the Nikkei 225 Index initially rose to record highs on the expectation of more accommodative fiscal policy, the bond market signaled alarm. Fears over a lack of fiscal discipline caused the yield on the 30-year Japanese government bond (JGB) to rise, suggesting that “bond vigilantes” are circling one of the world’s most indebted nations, where public debt is already over 260 percent of GDP.
A Clash with the Central Bank
Takaichi’s push for continued ultra-low interest rates puts her on a collision course with the Bank of Japan (BoJ). After decades of fighting deflation, Japan finally saw inflation—driven by global price surges—rise above the BoJ’s 2 percent target. This has prompted the central bank, under Governor Kazuo Ueda, to begin a gradual process of monetary policy normalization, moving away from its unconventional easing.
Takaichi has openly criticized the BoJ’s decision to raise rates, preferring to keep borrowing costs low to fuel her spending plans. Her preference could put the central bank’s independence under renewed scrutiny and potentially halt the delicate process of rate hikes. Economists warn that a prolonged clash between the government’s desire for fiscal stimulus and the central bank’s need to normalize policy could lead to increased volatility in the yen and long-term interest rates.
A Constellation of Challenges
Takaichi’s tenure will not just be defined by her economic balancing act. Her hard-line, arch-conservative stance risks creating friction on multiple fronts.
Domestically, she must unify a fractured LDP, having won a leadership race that exposed deep internal rifts. Her coalition partner, Komeito, has already pressured her to moderate her policies, particularly her nationalist views and hardline stance on immigration. Takaichi, for example, is opposed to same-sex marriage and allowing married couples to have separate surnames, views that contrast sharply with the preferences of many moderate voters.
Internationally, her nationalistic positions—such as frequent visits to the controversial Yasukuni Shrine and a hawkish stance on China, including talk of a “quasi-security alliance” with Taiwan—could immediately strain relations with Beijing and Seoul. In a world increasingly defined by geopolitical tension, her approach to trade, including a potential effort to renegotiate an investment deal with the United States, will be closely watched.
Takaichi’s rise is a momentous chapter in Japanese politics, promising a bold, decisive leadership model. Yet, the irony is profound: the “Iron Lady” of Japan is not offering the bracing medicine of austerity for the country’s economic malaise, but a massive dose of fiscal adrenaline. Whether this gamble—betting on a debt-fueled spending spree to overcome three decades of inertia and an intractable demographic decline—can finally restore Japan’s lost growth remains the most critical test of her premiership. For Takaichi, the tough work, as she herself admitted, has just begun.
