Japan Unveils $135B Stimulus Amid Inflation and Yen Weakness

Japan’s new Prime Minister Sanae Takaichi has unveiled a sweeping 21.3 trillion yen ($135 billion) stimulus package aimed at easing the financial burden on households and businesses grappling with rising inflation. The ambitious plan includes energy subsidies, tax relief, and other support measures to help everyday consumers.

The move comes just a month after Takaichi assumed office, succeeding Shigeru Ishiba, whose tenure lasted barely a year amid public frustration over surging living costs. The government hopes the stimulus will provide immediate relief, but it has sparked concerns about adding to Japan’s already enormous public debt.

Markets reacted swiftly: government bond yields reached record highs, and the yen weakened against the dollar. A softer yen increases import costs for Japan, which depends heavily on foreign energy, food, and raw materials. Finance Minister Satsuki Katayama hinted that the government could intervene if foreign exchange movements became “disorderly.”

Official data shows that core inflation—excluding fresh food—rose to 3.0% year-on-year in October, up from 2.9% in September. Rice prices alone have surged 40% compared to last year, highlighting the impact on ordinary households. The economy also contracted 0.4% in Q3 2025, marking its first decline since early 2024.

Adding to the economic strain is Japan’s growing diplomatic tension with China. Takaichi’s remarks suggesting possible military support for Taiwan in case of an attack led China to summon Tokyo’s ambassador and advise its citizens against travel to Japan. Reports indicate Beijing may also suspend Japanese seafood imports, although neither side has confirmed this officially. The dispute has intensified along the Senkaku/Diaoyu Islands, a long-standing flashpoint in the East China Sea.

Despite the challenges, Takaichi has stressed the importance of a “responsible and proactive fiscal policy” while prioritizing relief for citizens facing rising prices.