The Takaichi cabinet approved a 21.3 trillion yen (US$136.25 billion) stimulus package on Friday (November 21) that includes a 17.7 trillion yen ($113.21 billion) supplemental budget. The latter will be submitted to the Diet for passage this session.

The total amount, including loan guarantees and other non-budgetary measures, will be 42.8 trillion ($273.77 billion). This amounts to the largest stimulus package since the Covid-19 pandemic. (Takaichi's press conference is here.)

This stimulus package was structured around three priorities, including measures to provide relief from the rising cost of living; "strategic investments" in high-priority sectors, including shipbuilding, artificial intelligence (AI), and semiconductors; and an increase in defense spending to bring total defense expenditures for FY2025 to 2% of GDP.

As Nikkei reports, the stimulus package steadily grew in size as the Takaichi government rejected the finance ministry's initial draft and pushed for a larger budget in coordination with both ruling and opposition parties, ratcheting up the headline number as additional tax reductions and subsidies were included in the package.

In her remarks announcing the budget, Prime Minister Sanae Takaichi sought to reassure markets that her government is serious when it says it is pursuing responsible fiscal expansion, noting, for example, that the overall amount of debt issuance in FY2025 will be lower than in FY2024.

Nevertheless, as the government heads into the final stages of preparing the FY2026 budget, it will be engaged in a constant dialogue with markets, trying to reassure investors that she still recognizes the importance of fiscal sustainability in some form and that her policies will not be inflationary (and detrimental for the yen's value against the dollar and other major currencies).

LDP and Ishin search for consensus on seat reductions

In a meeting of Liberal Democratic Party (LDP) and Ishin no Kai policy officials on November 21, the parties reportedly agreed that they will aim to pass a bill that outlines a broad framework for reducing the number of seats in the lower house, serving as a precursor to a broader debate with opposition parties on electoral reform in the spring.