Japan’s debt-driven stimulus plan sparks economic concerns as yen weakens

Japanese Prime Minister Sanae Takaichi defended her new multitrillion yen stimulus plan in parliament on Wednesday, facing lawmakers for the first time since announcing the large-scale spending package. The initiative, valued at 21.3 trillion yen, has triggered warnings from economists who worry that extensive borrowing at a time of yen weakness could further strain Japan’s already fragile fiscal position.

During the parliamentary session, Takaichi argued that the stimulus is essential to support households coping with rising prices. She said the government would closely monitor currency movements and take necessary steps if shifts in the yen no longer reflect economic fundamentals. Her remarks aimed to reassure critics who fear that the plan could push the yen even lower, making imports more expensive and placing additional pressure on consumers and businesses.

The cabinet approved the package on Friday, which includes 17.7 trillion yen in fresh spending. It marks the largest government stimulus effort since the pandemic period and represents Takaichi’s first major economic initiative since taking office. The plan is designed to counter inflationary pressures, stabilise purchasing power, and provide targeted relief to families and small businesses facing higher costs for energy, food, and essential goods.

Economists, however, have expressed concerns about the long-term implications of such large borrowing. Japan already carries one of the highest public debt levels in the world, and critics say expanding debt-financed spending could complicate fiscal management for years to come. With the yen trading at historically weak levels, additional borrowing risks increase the cost of imported goods, ranging from fuel to agricultural products. Analysts warn that this dynamic could undermine the benefits of the stimulus before they fully reach the public.

Some experts also question whether the spending measures will generate sustainable economic momentum. They note that Japan has relied heavily on stimulus packages over the past decade to support growth, yet structural issues such as labour shortages, slow wage expansion and demographic decline continue to weigh on the economy. Without reforms alongside the spending, they argue the package may offer only temporary relief.

Supporters of the plan say immediate action is needed as households face rising living expenses and companies struggle with higher production costs. They argue that targeted subsidies and financial support can help ease inflation’s impact and maintain economic stability in the short term. The government has emphasised that a portion of the funds will be directed toward energy assistance, childcare support, and initiatives to ease the financial burden on low-income families.

The debate reflects broader uncertainty about Japan’s economic direction under Takaichi’s leadership. While her government has framed the stimulus as a necessary response to current economic pressures, opposition lawmakers and analysts remain sceptical about the long-term risks associated with expanding debt during a period of currency volatility. How the plan unfolds in the coming months will shape both public perception and fiscal challenges as Japan navigates a difficult economic environment.