Takaichi vows to loosen spending despite inflation…"The specter of Abenomics"

First parliamentary speech since taking office as prime minister

"Active fiscal policy for a strong economy"

Likely to launch a supplementary budget to raise funds

Greater concern about stoking inflation

Promote investment in AI, semiconductors and shipbuilding

Takaichi "Strengthen ties with South Korea"

South Korea's CPTPP accession likely to gain momentum

Proposes defense spending equal to 2% of GDP this year

Sanae Takaichi, Japan's prime minister, said in her first parliamentary speech since taking office on the 24th that she would increase fiscal spending. With lingering concerns about inflation, the policy stance to loosen spending drew criticism from the Nihon Keizai Shimbun, which said Japan must "break with the specter of Abenomics." Abenomics refers to former Prime Minister Shinzo Abe's economic policies, which centered on fiscal expansion and monetary easing.

◇'Will loosen spending' Takaichi

Takaichi outlined her main policy ideas on the economy and security in the speech. In the economic sphere she pledged "responsible active fiscal policy," deciding to expand fiscal spending. Although she used the word "responsible," assessments note that the emphasis was placed on "active fiscal policy."

She stressed building a "strong economy" above all. Takaichi said, "I will strategically deploy fiscal spending to build a strong economy." Through this, she plans to raise incomes and improve consumer sentiment to expand tax revenue. She also presented measures to stabilize prices, with moves such as abolishing the provisional gasoline tax rate among the examples. She intends to prepare a supplementary budget to secure funding.

She said she would increase local allocation grants to support regions according to local conditions. Reflecting price increases, she plans to raise the basic income tax deduction and design a so-called "benefit-type tax credit" system that pays the difference in cash to low-income households whose income tax is lower than the deduction amount. The system focuses on supporting low-income households rather than blanket tax cuts or cash payments.

On industrial policy she launched the "Japan Growth Strategy Council." In response to economic security, food security and energy security, she plans to expand "crisis management investment." She intends to prepare measures to promote investment in strategic fields such as artificial intelligence (AI), semiconductors, shipbuilding and quantum technology.

Takaichi's fiscal expansion is being evaluated as "Abenomics Season 2." However, critics argue that Abenomics, which was introduced to escape deflation, is not suitable for the current era of inflation. There is a significant risk that "loosening spending" policies will further spur prices. Japan's consumer prices have continuously exceeded the government and the Bank of Japan's 2% target from April 2022 through last month. The Nihon Keizai Shimbun pointed out, "The current Japanese economic situation is different from when Abenomics was introduced," adding, "What must be addressed is not deflation but inflation."

Concerns about fiscal deterioration have also grown after Takaichi indicated during the LDP leadership race that she would even tolerate issuing deficit-covering government bonds. Last year, Japan's government debt-to-GDP ratio was 236.7%, the highest in the world. The Japanese government is expected to bear roughly 13 trillion yen in government bond interest payments next year alone. That would be a 24% increase from this year, marking a record high.

◇"Fundamentally strengthen defense capabilities"

On diplomacy and security policy, Takaichi said, "China, North Korea and Russia's military trends are serious concerns," and pledged to strengthen the U.S.-Japan alliance. She said, "I will build trust between leaders when President Donald Trump visits Japan." President Trump is scheduled to visit Japan from the 27th to the 29th. Takaichi also said she would deepen multilateral security consultations such as Japan-U.S.-South Korea centered on the U.S.-Japan alliance.

She also pledged to work to expand the membership of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) led by Japan. She emphasized, "I want to strengthen relations with an important neighboring country, South Korea, through leader-level dialogue." South Korea's CPTPP accession is likely to gain momentum.

Regarding China, she said that security concerns genuinely exist, and she stated that North Korea's nuclear and missile development can never be tolerated. She said there is a need to fundamentally strengthen defense capabilities. She proposed a goal of achieving defense spending equal to 2% of GDP within the year through a supplementary budget. The Japanese government's existing target was to reach this by 2027, and she said she would bring it forward by two years. Next year she plans to revise the "three security documents": the National Security Strategy, the National Defense Strategy and the Defense Buildup Program. Takaichi emphasized, "I will make the Japanese archipelago strong and prosperous and lift Japan back to a high place in the world."

Tokyo=Il-gyu Kim, correspondent black0419@hankyung.com