Japanese Prime Minister Sanae Takaichi has signaled the end of the country's reflationary economic policies, just days after US President Donald Trump criticized the weak yen. In her Oct 5 policy speech, Takaichi framed 2026 as the start of a new era of "responsible, proactive fiscal policy," distancing herself from the reflationary approach of her predecessor Shinzo Abe. She later rejected the "reflationary" label outright during a parliamentary debate, emphasizing domestic investment to boost growth and tax revenues.
The shift follows a tense exchange with Trump on Sept 22, where he complained about the yen's weakness hurting US exporters. Takaichi acknowledged the issue but reportedly questioned why Japan should prioritize US concerns. The yen has plummeted over 50% against the dollar since 2020, driven by low Japanese interest rates while other central banks raised theirs. This has inflated import costs for Japanese households while benefiting exporters and tourists.
Analysts suggest Takaichi's messaging is more political than substantive, aimed at easing US pressure and calming markets. Stefan Angrick of Moody’s Analytics called the move "sensible and probably politically expedient," given Japan's current inflation. However, critics like economist Richard Katz dismissed her growth plans as an "economic fantasy," arguing Japan's industrial competitiveness, not just policy, underlies the yen's weakness.
Japan has intervened heavily in currency markets, spending over 27 trillion yen in 2026 alone to prop up the yen. In July, Tokyo and Washington even coordinated a rare joint intervention. Yet markets remain wary of Japan's fiscal health, with public debt at 200% of GDP. Takaichi's commitment to a 370 trillion yen investment plan by 2040 has done little to reassure skeptics who demand concrete measures to boost productivity and business investment.