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Japan leaders face investor scrutiny over plans for big spending surge
The proposed ¥370tn funding gap, paired with plans to rewrite budget rules, is raising fears Japan could see a debt shock reminiscent of the UK’s Liz Truss episode.
Sanae Takaichi, the ruling Liberal Democratic Party leader, is pursuing a broad spending and industrial investment plan that international investors say could be as disruptive as a so-called Liz Truss-style economic shock, according to the Guardian Business. The plan calls for injecting the equivalent of £1.7tn, with the government targeting a doubling of economic growth and directing investment into 17 industrial sectors by 2040. Investors are questioning where the extra ¥370tn, or roughly £1.7tn, will come from to finance the program. The Guardian describes nerves in financial markets tied to the proposal to rewrite previous budget rules and embark on what investors view as an unfunded spending spree. The article also links today’s concerns to Japan’s earlier economic turmoil, including the property bubble burst in 1991 and a later slump that followed bank and financial institution stress. It notes Japan’s government debt rose from about 60% of GDP in the late 1980s to 130% by the end of the 1990s, after interventions, and that after the 2008 global financial shock the economy stagnated. The government has been spending around 10% more than it receives in tax receipts, with the debt-to-GDP ratio reaching 260% by 2020 before improving to below 230% in 2025, the Guardian reports.