Japan’s Prime Minister Sanae Takaichi Grapples With Slumping Approval and Market Skepticism

On July 29, Reuters reported that Prime Minister Sanae Takaichi recorded her lowest approval rating since taking office last year. Rising inflation, driven in part by a weak yen that has fallen to a four-decade low, has eroded voter confidence. At the same time, her push for expansive fiscal stimulus and a promised cut to an 8 % levy on food has coincided with Japanese government bond (JGB) yields climbing to three-decade highs, intensifying pressure from bond-market investors.

Reuters

The administration’s budget overhaul removes caps on spending requests for key growth sectors, a move analysts say could raise debt issuance in the next fiscal year. The yen’s slide has persisted despite a record $72 billion intervention between late April and early May, after which top currency diplomat Atsushi Mimura has remained silent. Falling oil prices have temporarily steadied JGB yields, but premium markets continue to price in Japan’s fiscal challenges.

Reuters

Katayama later said the government would not impose a debt-issuance ceiling, aiming to reassure investors. Former Bank of Japan board member Takahide Kiuchi warned that the administration must present “specific facts and figures” to rebuild market trust.

Reuters

Atsushi Takeda, chief economist at the Itochu Research Institute, argued that “Takaichi tried to explain how her administration was mindful of the need for fiscal discipline. But her policies themselves won’t change much, so there’s not much hope in bond markets that things could change.” Takeda added that the recent stabilization of JGB yields is largely attributable to lower oil prices rather than fiscal reform. Takashi Fujiwara, chief fund manager at Resona Asset Management, noted that each new government announcement creates a “shock” that weakens the yen, underscoring the market’s skepticism.

Reuters

“Takaichi tried to explain how her administration was mindful of the need for fiscal discipline. But her policies themselves won't change much, so there's not much hope in bond markets that things could change,” — Atsushi Takeda, chief economist at Itochu Research Institute

Reuters