Prime Minister Takaichi Sanae’s government is pressing ahead with a supplemental budget for June, but the plan is already stirring tensions with coalition partners and opposition parties. The administration aims to cap the package at roughly ¥3 trillion ($21 billion), focusing on replenishing government reserves and extending fuel subsidies, with an additional ¥500 billion earmarked for utility subsidies through the summer. However, the junior coalition partner Nippon Ishin no Kai and opposition lawmakers are pushing for broader economic stimulus as consumer sentiment softens.
Takaichi has staked her economic strategy on what she calls “responsible fiscal expansion,” prioritizing long-term investments over short-term relief. Yet rising bond yields—a trend exacerbated by a global bond selloff—may give her cover to resist stimulus demands. Her Friday meeting with Bank of Japan Governor Kazuo Ueda, their first one-on-one since February, suggests she may tolerate another rate hike to curb inflation, even as April data showed inflation running below the BOJ’s 2% target. Fuel subsidies and new subsidies for secondary education and school lunches have helped contain price pressures, but senior Liberal Democratic Party (LDP) officials argue the fuel subsidies are “unrealistic and unsustainable.”
Party Dynamics and the Study Group
On Thursday, the LDP’s newly formed National Power Research Association—a study group organized by veteran lawmaker Taro Aso to promote Takaichi’s agenda—held its first meeting, featuring US Ambassador George Glass. Attendance reached 347 LDP lawmakers, over 80% of the party’s parliamentary strength, including former Prime Minister Fumio Kishida. But the broad turnout diluted the group’s effectiveness as a dedicated base for Takaichi. One participant described the atmosphere as “not high,” likening it to a routine party meeting rather than a rallying movement.
Only staunch opponents like former Prime Minister Shigeru Ishiba and his ally Seiichiro Murakami stayed away; Murakami compared the gathering to the wartime “Imperial Rule Assistance Association.” The high attendance reflects lawmakers’ reluctance to appear distant from a still-popular prime minister, but it does not signal deep loyalty. More consequential for Takaichi’s immediate governance may be her Friday dinner with LDP upper house leaders, aimed at mending fences after they complained their advice was being ignored. With the LDP lacking a majority in the House of Councilors, cooperation with upper house leaders—who must negotiate with opposition parties on the chamber’s agenda—remains essential.
Defense Spending Debate
The LDP’s national security panel, tasked with drafting recommendations for Takaichi’s revision of Japan’s three national security documents, approved a proposal that omits a concrete target for defense spending. Instead, it calls for “securing a budget for transforming defense capabilities within five years.” The omission signals internal concern about committing to higher spending without a stable fiscal foundation, especially as interest rates climb. When the Kishida government set a 2% of GDP target in 2022, it sparked a divisive political debate; the current environment, with bond yields rising, makes the issue even more sensitive. The draft focuses on developing and deploying unmanned vehicles and strengthening Japan’s defense industrial base, reflecting a shift toward capability over raw budget numbers. The full panel will debate the draft on May 25 before submitting it to the government in June.
Takaichi is scheduled to explain her thinking on the supplemental budget on Monday, May 25. Her ability to balance inflation control, demand support, and long-term fiscal ambitions—while managing party unity and defense spending expectations—will define her early tenure.
