Breakingviews - COMMENTARY: Japanese PM's reflationist label is hard to shake
- Japan's PM Sanae Takaichi pushes a $2.3 trillion 'investment splurge' and scrapped tax cuts that threaten to stoke inflation rather than tame it.
- Bond markets are screaming 'no', with 30-year JGB yields at a record 4.2%—a level that smells of fiscal fear, not fiscal responsibility.
- Takaichi's answer to a shrinking workforce is to close the borders while the BOJ is left to soak up the borrowing; a recipe for a currency crisis and a debt spiral.
- Her own finance minister's reassurances are about as convincing as a Tokyo real estate agent selling you a plot of land on the Pacific Ring of Fire.
Brief Summary
Japan's rookie Prime Minister Sanae Takaichi is discovering that being called a 'reflationist' is the least of her problems. The 'Breakingviews' boffins have pored over her $2.3 trillion 'Takaichinomics' stimulus plan and deduced that she's basically trying to light a fire in a room that's already ablaze. Instead of a growth miracle, we're likely to get inflation on steroids and a sovereign debt crisis that puts the 'Japan is doomed' headlines of the 1990s to shame.
The core problem is she's using a 1980s playbook for a 2020s demographic disaster. With a shrinking workforce and the highest investment-to-GDP ratio in the G7, Japan doesn't need more government billions; it needs a cure for the labor shortage. By slamming the door on immigrants and suggesting a 200% GDP debt ratio is fine, she's set borrowing costs soaring. The absurd result is that to prove she's a fiscal hawk, she's now trying to find spare change under the sofa cushions via a 'Department of Government Efficiency' to fund the mess she created.
Why This Matters
If you own a Japanese government bond, a yen-denominated asset, or a Japanese company stock, Takaichi's plan reads like a bond market's worst nightmare. The 'virtuous cycle' of wage-driven growth is at risk of being replaced by a vicious one of rising rates and falling confidence. It could undermine the very reflation she once championed and turn Tokyo's markets into a bargain basement for global vultures.
For the average soul, this is a textbook case of a politician trying to fix a hangover with more whisky. If she gets her way, we might see a global knock-on effect, as Japanese institutional investors, fleeing domestic bond carnage, seek yields elsewhere. It's a reminder that even the most developed economies can still flirt with fiscal self-sabotage, turning a once-stable market into a casino.