Japan's Economy on Shaky Ground as Takaichi Faces Multiple Challenges

Japan's new Prime Minister Sanae Takaichi took office in October 2025 with a mandate to revitalize the country's stagnant economy and reduce food inflation, which had reached 7% the previous year. Her coalition promised to restore purchasing power to Japanese households.

Nine months later, her government is facing a convergence of forces that threaten not only to stall its agenda but also to destabilize Japan's economy, the third-largest in the world. These forces include geopolitical tensions, fiscal constraints, and monetary policy limitations.

Prime Minister Takaichi has signaled readiness for further swift measures to mitigate the economic fallout from the Middle East conflict, while acknowledging that 'FX rates fluctuate due to multiple factors' and it's difficult to isolate the impact of one factor. The Bank of Japan will decide on specific steps to address the situation.