Currently I am not an economist, nor do I earn an income from economic commentary, so I do not follow every policy detail minutely. However, even from my casual observation of the news, several questionable aspects of the Takaichi administration’s policies have begun to stand out.
My fundamental stance remains that I support the Takaichi administration as long as it maintains its commitment to fiscal expansion. For now, I will not split hairs over the specific content of government spending. However, I do not support everything the administration does blindly, which is why I am writing this blog. Specifically, Point 1 is a concern from a macroeconomic perspective, and Point 2 is a political issue that could undermine the very foundation of the administration.
1. Acceptance of Interest Rate Hikes by the Bank of Japan
As I have stated repeatedly, the rise in real wages is more important than price stability; I believe rates should not be raised until a clear path for wage growth is established. Ms. Takaichi herself has made reluctant remarks regarding rate hikes in the past. However, it appears that a rate hike in December is increasingly likely.
In truth, as long as the direction of fiscal expansion is established, whether a rate hike occurs in December is a relatively minor issue (I personally do not care about short-term market fluctuations). If real wages begin to rise as a result of fiscal expansion, the timing for a rate hike would naturally become clear around next March anyway, as Takeo Kataoka has suggested.
However, I do not believe it is appropriate to continue raising rates aggressively without first confirming a rise in real wages. Unlike the micro-level issues discussed below, interest rates are the “heart” of the macroeconomy. During the Abenomics era, monetary policy tried its best to lift the economy, but fiscal policy got in the way. This time, we face the risk of monetary policy obstructing the economy just as fiscal policy is finally starting to do its job.
Managing monetary policy under cost-push inflation while maintaining public understanding is difficult, but I do not believe that “simply defending the 2% inflation target” is enough. If that were all it took, any fool could serve as a BOJ Policy Board member. One would only need to adjust rates according to the sophisticated price forecasts brought in by the BOJ’s elite economists. It is far more important to lead the way toward rising real wages in coordination with fiscal policy than to obsessively guard the 2% target.
I can say this because I bear no official responsibility: it is a mistake to think we can revitalize the economy while avoiding a temporary weakening of the yen or the persistence of inflation. I understand the difficult position PM Takaichi is in, but I want her to brace herself and hold firm.
2. Codifying the Rice Production Reduction Policy (Gentani)
Following the confusion over rice policy, news emerged on December 5 regarding a plan to codify the production reduction policy into law. I am not an expert on rice, nor do I follow every word of Minister of Agriculture Suzuki, but my impression is that there is a severe lack of explanation. Voters are not just rice farmers; many citizens are suffering from rising rice prices.
Unlike in the past when people were misled by old media, today’s voters are much smarter. The government must provide a proper explanation from various perspectives—the ideal state of agriculture as an industry, farmer income, rice tariffs, stockpiling policies, food security, and the daily lives of citizens—as to why codifying production cuts is necessary. While a smaller issue compared to BOJ rate hikes, rice is a daily necessity. This policy move by Minister Suzuki could easily become the Takaichi administration’s Achilles’ heel.
3. Handouts of 20,000 Yen per Child
This is reportedly a concession to the Komeito party. Why favor only households with children? Should we not help those caring for elderly parents? Why is it necessary to cater to Komeito—who left the ruling coalition of their own accord—by launching such a haphazard policy? It is difficult to identify exactly who is suffering most from high prices, which is why the proposal to lower the consumption tax has gained so much support.
4. Commencement of Defense Tax Hikes
The LDP appears set to begin collecting income tax for defense spending in January 2027. Along with the “Child-rearing Tax” starting in April 2026, this is a negative legacy of Mr. Kishida. I argued in a previous post that since future generations are the primary beneficiaries of both, funding through government bonds is perfectly fine. My conviction on this hasn’t changed one bit.
5. “Kodomo NISA” (NISA for Children)
This is a system allowing NISA accounts in children’s names, replacing the Junior NISA that ended in 2023. To be brief, this is likely a system that favors “power couples” or the wealthy. Ordinary people cannot even exhaust their own NISA limits, let alone their children’s. It is widely known that the cause of the declining birthrate is the declining marriage rate; increasing the annual income of unmarried individuals is more important than childcare support. In my view, we should stop expanding NISA—which is essentially a policy to encourage frugality—and focus on economic expansion instead.
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