Sanae Takaichi was formally chosen Japan’s 105th prime minister after the ruling Liberal Democratic Party (LDP) secured a commanding majority in the lower house, consolidating a shift away from the multi‑party check that has characterised Tokyo politics in recent years. Her election follows an LDP victory that won more than two‑thirds of the 455 seats in the House of Representatives, leaving the party positioned to press through an ambitious agenda of state‑led fiscal expansion.
Economic indicators already present a fragile picture. Japan narrowly avoided a technical recession with GDP growth of just 0.1% quarter‑on‑quarter in Q4 2025, well below economists’ expectations. At the same time government liabilities have ballooned: public debt reached a record 1,342.17 trillion yen by the end of 2025 — roughly $8.8 trillion — or about 230% of GDP by IMF estimates, while annual interest payments have risen to about 16 trillion yen.
Takaichi’s brand of “active fiscal policy” leans heavily on large‑scale public borrowing and credit to bankroll strategic priorities: defence procurement, semiconductor supply chains, artificial intelligence and other industrial projects that signal an effort to marry economic policy with geostrategic objectives. Proponents argue this state‑led push is necessary to strengthen Japan’s technological and defence posture amid rising regional tensions.
But scholars and market observers warn of immediate downsides. Relying on debt‑financed stimulus risks further depreciation of the yen, already halving against the dollar from levels seen in the Abe era, while pumping liquidity into markets can feed asset price inflation rather than broad‑based wage growth. Critics say a buoyant stock market may mask deteriorating fundamentals and leave households exposed when equity prices correct.
The domestic social picture is also unsettled. Takaichi campaigned as tough on immigration, and her government has moved quickly to tighten foreign worker policies. That stance plays to voters anxious about social cohesion and crime — official data show a record number of foreign workers in Japan — but experts warn it risks deepening social polarisation and feeding nativist sentiment just as Japan seeks inward investment and talent for high‑tech sectors.
Political vulnerability compounds the policy risks. The LDP’s slate included dozens of figures linked to the “black money” fundraising scandal that exposed illicit party financing and led to sanctions and factional turmoil in 2023. Many of those controversial candidates were re‑elected, prompting public criticism and raising questions about governance and transparency under a government moving quickly to wield expanded power.
For international audiences, the immediate concern is how Tokyo’s fiscal turn and heightened defence spending will reshape regional security and markets. Large‑scale borrowing and a weaker yen have implications for global capital flows and inflation imported through energy and components. Meanwhile, an emboldened Japanese security posture could accelerate regional arms planning and complicate Tokyo’s ties with neighbours and partners.
Takaichi’s government inherits a narrow policy margin for error. If debt dynamics push long‑term yields higher or inflation erodes purchasing power, public support could collapse quickly — a risk compounded by persistent corruption allegations and intraparty rivalries. For investors, diplomats and regional capitals, the new government’s early months will be telling: will Tokyo succeed in translating fiscal largesse into durable industrial strength, or will short‑term market gains obscure widening fiscal and social fissures?