Takashi Sanae's financial policy reveals signs of a resurgence of "Abenomics": long-term balance replaces annual targets, and expenditure-led growth is on the rise.

Japanese Prime Minister Kan Suzuki expressed during a speech in the House of Representatives on Friday that the government will no longer evaluate annually in order to achieve the basic fiscal surplus goal for fiscal consolidation, but the strategy may be adjusted to aim for balance within a few years. "It is reasonable that economic policies have changed," Suzuki said. Achieving the basic fiscal surplus has long been seen as a key goal of fiscal consolidation efforts. Suzuki's comments suggest her determination to shift fiscal policy towards increasing spending, reminiscent of her mentor, former Prime Minister Shinzo Abe's style of reflationary policy agenda. "Abenomics" had dominated the Japanese political agenda for almost a decade. Earlier on Friday, Suzuki stated that "Abenomics" had made progress but lost momentum during the COVID-19 pandemic. Since taking office as Prime Minister, Suzuki has avoided publicly pressuring the Bank of Japan to stop raising interest rates, but she had described raising interest rates as a "foolish" idea in September 2024. The Bank of Japan is set to review its policies on December 19, and about half of the economists surveyed expect a rate hike at that time. Suzuki pointed out that her goal is to lower the ratio of national debt to GDP while achieving nominal GDP growth exceeding Japan's government bond yields. However, she did not provide detailed explanations on how to achieve these goals. "Suzuki is trying to show a strong determination different from her predecessor, but what she can actually do is not clear yet," said Hiroaki Muto, chief economist at Daiwa Securities. "The idea of multi-year budgets has been around since the time when Fumio Kishida was Prime Minister, so it is not entirely novel." Reflecting on previous policy adjustments, the government led by former Prime Minister Shigeru Ishiba had abandoned the goal of achieving a basic fiscal surplus by March 2026 earlier this year, but indicated that it may still be feasible to achieve it starting in the fiscal year that begins in April 2026. In response, Suzuki emphasized that "financial management in the future needs a longer-term perspective, with the focus no longer on achieving a balanced budget each fiscal year." According to data from the International Monetary Fund, Japan has the highest debt burden among developed economies, with its general government debt expected to be equivalent to 229.6% of GDP. Additionally, Suzuki's recent personnel choices for important advisory groups in the Japanese economy also reflect her return to the loose monetary and fiscal policy stance of "Abenomics." The Economic and Fiscal Policy Council will include former Bank of Japan Governor Masaru Jukada, who had advocated for monetary easing along with former Governor Haruhiko Kuroda. At the same time, the newly established Growth Strategy Committee will include inflationary figures, former Bank of Japan director Koji Ogoma, and France's Agricultural Credit Bank's chief economist Takuji Aida, known for promoting expansionary policies. "Given the constraints of the Japanese budget, we must observe to what extent she can implement her policies," Muto said. "Of course, if she becomes too aggressive, the reaction from the bond market will make her cautious, so I am not worried that she will be too aggressive." So far, Suzuki has emphasized that her fiscal policy will remain "responsible" while being expansionary, and has avoided explicitly criticizing the central bank's path of rate hikes, which may be a potential response to market concerns. Currently, the scale of the economic stimulus package ordered by her to support the economy and households is not yet clear, but if it exceeds expectations, it may reignite market concerns about Japan's fiscal health and further push up long-term bond yields. On Friday, when asked by opposition party members about "fiscal populism," Suzuki refuted the notion. "If you are referring to irresponsible populism that tries to win popularity by giving away money, that is different from the policies of the Suzuki Cabinet," she said.