Takaichi Vows to Pursue Strong Economy and Sustainable Finances Together

Japanese Prime Minister Sanae Takaichi said she would pursue a "strong economy" and "fiscal sustainability" at the same time. The comments were seen as a message to financial markets that her government would maintain an active fiscal stance while managing bond issuance and preserving market confidence.

In a policy speech to the 222nd extraordinary session of the Diet on October 5, Takaichi said she would "deliver both a strong economy and fiscal sustainability without delaying necessary policies and reforms." She added that the government would raise market trust by fully explaining policy execution and results.

Takaichi described her economic policy stance as "keisei saimin," or governing for the welfare of the people. She said the government would seek to increase households' take-home income while also securing fiscal soundness. Achieving both, she said, is the meaning of responsible active fiscal policy.

The government will also continue its "crisis management and growth investment" program covering 17 strategic sectors and 62 products. It plans to formulate a "Japan Growth Strategy Action Plan" by year-end laying out the direction of domestic investment over the next five years. Needed investment will not be delayed, while low-effect projects will be wound down and bold regulatory reform will also be pursued.

On fiscal management, Takaichi set as a core goal steadily lowering the combined debt balance of the central and local governments relative to gross domestic product. The government also plans to control annual Japanese government bond issuance while comprehensively reviewing the economy, inflation, tax revenue, interest rates, interest costs and market conditions.

She also said the government would respond nimbly after assessing the impact if the economy or markets move differently than expected. The remarks were interpreted as reflecting market concerns that an active fiscal stance could fuel higher government bond yields and a weaker yen.

As part of inflation measures, the government will pursue steps to ease the consumption-tax burden on food and provide support payments based on income levels. Takaichi said the funding would not rely on special deficit-financing bonds. "I want to give households even a little more room," she said. She added that the government would secure funding in a way that could win the market's trust.

She also identified the falling birthrate and population decline as core challenges. The government plans to draw up a "Comprehensive Population Strategy" by year-end, including demographic projections and broad countermeasures. Takaichi said Japan must reverse the falling birthrate while also building a new model of the country adapted to a shrinking-population society.

On foreign policy, Takaichi stressed the need to uphold an international order based on the rule of law. On China, with which relations have cooled, she described it as an "important neighboring country" and said Japan would continue dialogue to protect its national interests and build a constructive and stable relationship. She also urged lawmakers to advance bipartisan discussions during this Diet session on the number of seats in the House of Representatives and on constitutional revision.

Tokyo=Choi Man-su, Hankyung.com correspondent bebop@hankyung.com