Takaichi Faces Make-or-Break Day as Coalition Bill, BOJ Pressure Converge

Japanese Prime Minister Sanae Takaichi faces a crucial test as she navigates the final day of the extended Diet session. The government's ability to pass key legislation, particularly the secondary-capital bill, is under scrutiny as opposition parties prepare to question Takaichi on various issues.

The secondary-capital bill, a priority for the ruling Japan Innovation Party (Ishin), aims to create a framework for strengthening backup national functions outside Tokyo in case of a disaster. However, critics argue that the bill lacks clear criteria and could be used to advance Ishin's Osaka-centered agenda through national legislation.

Takaichi's government has revised its economic blueprint after earlier language raised concerns about leaning on the Bank of Japan (BOJ) to support private demand and keep financial conditions easy. The BOJ is expected to leave interest rates unchanged at its July 30-31 meeting, but it will likely maintain warnings that inflation could overshoot its 2% target.

The yen's weakness has become a major concern for the government, with Finance Minister Satsuki Katayama warning that the government is ready to take decisive action if foreign-exchange moves become excessive. The decision on food-tax relief, including whether to pursue a temporary cut to the 8% consumption tax rate on food, will also be crucial in addressing households' cost-of-living concerns.