Takako Takaichi does not possess the dominant position that Shinzo Abe once held. Although the ruling coalition has regained a majority in the House of Representatives, it remains in the minority in the House of Councillors. The Liberal Democratic Party (LDP) has to compromise with opposition parties to advance bills and budgets. Furthermore, her remarks about "a Taiwan emergency" in the Diet have triggered diplomatic frictions between China and Japan.

Japan's retail sales rose 1% year-on-year in November, slowing from the 1.7% growth recorded in October. (Reuters)

In October this year, Takako Takaichi became Japan's first female prime minister. With her political image as a "protégé of Shinzo Abe" and distinct nationalist stance, she has garnered relatively high approval ratings. Politically conservative, she advocates expanding Japan's strategic influence, strengthening the Japan-U.S. alliance, and revitalizing Abenomics, which is based on the "three arrows" of monetary easing, fiscal stimulus, and structural reforms.

However, the conditions that underpinned Abenomics have changed. Currently, Japan is grappling with persistent inflation, upward pressure on interest rates, and sky-high government debt, leaving significantly less room for economic policy maneuvering. Takaichi seeks to continue the first two "arrows" of Abenomics, with a greater focus on fiscal stimulus, while shifting the third "arrow" toward strategic industries and national defense construction. Yet these sectors are highly dependent on imports, which may further fuel inflationary pressures amid the depreciation of the yen.

Shinzo Abe launched Abenomics in 2012. Through ultra-low interest rates and fiscal expansion, the policy boosted stock prices and lowered unemployment, but it also led to a surge in public debt, yen depreciation, and the survival of "zombie companies". Faced with an aging population, many Japanese enterprises opted for overseas investment, exacerbating the problem of domestic industrial hollowing-out. The policy package introduced by Takaichi, dubbed Takana Economics, is regarded as an update to the Abe model.

With inflation already ranging between 2% and 3%, there is limited room for further monetary easing. Takaichi proposes expanding public investment in "crisis management" areas such as food security, energy, national defense, semiconductors, and artificial intelligence, and plans to increase defense spending to 2% of Japan's gross domestic product (GDP). She supports yen depreciation to protect the manufacturing sector, but rising import costs have emerged as a major driver of inflation. Moreover, as a large portion of Japan's manufacturing capacity has long been relocated overseas, the stimulative effect of currency depreciation on exports is not as pronounced as it once was.

Takaichi has put forward the goal of achieving "100% energy self-sufficiency", yet she endorses coal, natural gas, and nuclear energy—all of which rely on imported fuels. Take nuclear power as an example: nuclear reactors require imported uranium every 18 to 24 months. She also favors hybrid vehicles over fully electric ones, and gasoline is derived from imported crude oil. Whether it is crisis management, energy self-sufficiency, or expanded defense spending, all these initiatives are built on an import-dependent foundation and may intensify inflationary pressures in a weak yen environment.

On the issues of taxation and wages, Takaichi opposes cutting the consumption tax and refuses to set targets for raising the minimum wage. To address rising living costs, she has rolled out several short-term measures, including scrapping the temporary taxes on gasoline and light oil, subsidizing electricity and gas bills, and providing one-off cash grants to families with children.

In terms of agricultural policy, she has adjusted the policy of expanding rice production promoted by former Prime Minister Shigeru Ishiba to "production matching demand". Japan has long pursued agricultural protectionism, introducing a rice paddy reduction policy in 1970. Although the policy was officially abolished in 2018, de facto controls remain in place through production quotas and other means, which Ishiba and others have attempted to change. To cope with rising food prices, Takaichi encourages local governments to issue "rice coupons", but this measure has faced opposition from some local authorities due to high administrative costs and other factors.

There are notable differences between Takaichi and Abe regarding the third "arrow" of structural reform. Abe aimed to stimulate the vitality of the private sector, whereas Takaichi intends to guide the market through strong state-led industrial policies. She has identified 17 advanced industries, with the semiconductor firm Rapidus being the most representative; the company has received at least 7 trillion yen in government support.

Historically, Japan's industrial policies that responded to trends in the private sector have achieved success, such as in the automobile and electronics industries. However, in subsequent decades, state-led projects—including the fifth-generation computer, the fast breeder nuclear reactor, and uranium reprocessing—ended in failure. Current government subsidies run the risk of causing resource misallocation, crowding out more productive projects.

Takaichi embraces a vision of "partial self-sufficiency", advocating that all manufacturing industries should possess domestic production capabilities—a departure from Abe's approach of striking a balance between protectionism and internationalism. Abe encouraged the recruitment of foreign workers, while Takaichi has tightened the eligibility criteria. She plans to strengthen controls on overstaying foreign visas, unpaid medical insurance premiums, and land purchases by foreigners, as well as raise the thresholds and fees associated with visas and permanent residency. In 2024, Japan's population decreased by 0.75%, marking the sharpest decline since records began in 1968. The xenophobic atmosphere she has fostered may lead to a drop in the number of foreign workers, who are crucial to alleviating labor shortages in blue-collar sectors such as agriculture and elderly care in Japan.

On the political front, Takaichi lacks the dominant clout that Abe enjoyed in his time. While the ruling coalition has reclaimed a majority in the House of Representatives, it remains a minority in the House of Councillors, forcing the LDP to negotiate compromises with opposition parties to pass legislation and budgets. Additionally, her comments on "a Taiwan emergency" in the Diet have sparked Sino-Japanese diplomatic tensions. Economists at Goldman Sachs pointed out in November that the decline in Chinese tourists and Japanese consumer goods exports to China could reduce Japan's GDP growth by approximately 0.2%. What's more, China accounts for over 60% of global rare earth production and more than 90% of global rare earth processing volume—rare earths are indispensable raw materials for many of the strategic industries Takaichi intends to expand.

Over the past decade, public expenditure has accounted for roughly half of Japan's total GDP growth. Under the slogan of "proactive and responsible" fiscal policy, Takaichi unveiled an economic stimulus package of approximately 21 trillion yen in November, followed by the approval of an 18.3 trillion yen supplementary budget in December. Around 60% of this funding will be financed through new government bonds, even as Japan's government debt-to-GDP ratio hovers near 260%, among the highest globally. Cutting deficits could stall economic growth, while expanding deficits risks exacerbating inflation.

The current high approval ratings of the Takaichi cabinet should not be interpreted as widespread public endorsement of its economic policies. Nationalist rhetoric may boost support in the short term, but sustained price hikes and stagnant real wages will inevitably impact public opinion in the long run. Not only has her economic agenda been questioned by economists, but the media has also recently revealed that she spent a substantial sum on publicity during last year's LDP leadership election, and accepted corporate donations exceeding the legal limit as well as large sums from "mysterious" religious groups. Amid this confluence of controversies, neither her crafted public image—such as being "hardworking" and "sleeping only three hours a day"—nor her penchant for quoting anime lines can guarantee the long-term sustainability of her current high approval ratings.

Takako Takaichi does not possess the dominant position that Shinzo Abe once held. Although the ruling coalition has regained a majority in the House of Representatives, it remains in the minority in the House of Councillors. The Liberal Democratic Party (LDP) has to compromise with opposition parties to advance bills and budgets. Furthermore, her remarks about "a Taiwan emergency" in the Diet have triggered diplomatic frictions between China and Japan.

Japan's retail sales rose 1% year-on-year in November, slowing from the 1.7% growth recorded in October. (Reuters)

In October this year, Takako Takaichi became Japan's first female prime minister. With her political image as a "protégé of Shinzo Abe" and distinct nationalist stance, she has garnered relatively high approval ratings. Politically conservative, she advocates expanding Japan's strategic influence, strengthening the Japan-U.S. alliance, and revitalizing Abenomics, which is based on the "three arrows" of monetary easing, fiscal stimulus, and structural reforms.

However, the conditions that underpinned Abenomics have changed. Currently, Japan is grappling with persistent inflation, upward pressure on interest rates, and sky-high government debt, leaving significantly less room for economic policy maneuvering. Takaichi seeks to continue the first two "arrows" of Abenomics, with a greater focus on fiscal stimulus, while shifting the third "arrow" toward strategic industries and national defense construction. Yet these sectors are highly dependent on imports, which may further fuel inflationary pressures amid the depreciation of the yen.

Shinzo Abe launched Abenomics in 2012. Through ultra-low interest rates and fiscal expansion, the policy boosted stock prices and lowered unemployment, but it also led to a surge in public debt, yen depreciation, and the survival of "zombie companies". Faced with an aging population, many Japanese enterprises opted for overseas investment, exacerbating the problem of domestic industrial hollowing-out. The policy package introduced by Takaichi, dubbed Takana Economics, is regarded as an update to the Abe model.

With inflation already ranging between 2% and 3%, there is limited room for further monetary easing. Takaichi proposes expanding public investment in "crisis management" areas such as food security, energy, national defense, semiconductors, and artificial intelligence, and plans to increase defense spending to 2% of Japan's gross domestic product (GDP). She supports yen depreciation to protect the manufacturing sector, but rising import costs have emerged as a major driver of inflation. Moreover, as a large portion of Japan's manufacturing capacity has long been relocated overseas, the stimulative effect of currency depreciation on exports is not as pronounced as it once was.

Takaichi has put forward the goal of achieving "100% energy self-sufficiency", yet she endorses coal, natural gas, and nuclear energy—all of which rely on imported fuels. Take nuclear power as an example: nuclear reactors require imported uranium every 18 to 24 months. She also favors hybrid vehicles over fully electric ones, and gasoline is derived from imported crude oil. Whether it is crisis management, energy self-sufficiency, or expanded defense spending, all these initiatives are built on an import-dependent foundation and may intensify inflationary pressures in a weak yen environment.

On the issues of taxation and wages, Takaichi opposes cutting the consumption tax and refuses to set targets for raising the minimum wage. To address rising living costs, she has rolled out several short-term measures, including scrapping the temporary taxes on gasoline and light oil, subsidizing electricity and gas bills, and providing one-off cash grants to families with children.

In terms of agricultural policy, she has adjusted the policy of expanding rice production promoted by former Prime Minister Shigeru Ishiba to "production matching demand". Japan has long pursued agricultural protectionism, introducing a rice paddy reduction policy in 1970. Although the policy was officially abolished in 2018, de facto controls remain in place through production quotas and other means, which Ishiba and others have attempted to change. To cope with rising food prices, Takaichi encourages local governments to issue "rice coupons", but this measure has faced opposition from some local authorities due to high administrative costs and other factors.

There are notable differences between Takaichi and Abe regarding the third "arrow" of structural reform. Abe aimed to stimulate the vitality of the private sector, whereas Takaichi intends to guide the market through strong state-led industrial policies. She has identified 17 advanced industries, with the semiconductor firm Rapidus being the most representative; the company has received at least 7 trillion yen in government support.

Historically, Japan's industrial policies that responded to trends in the private sector have achieved success, such as in the automobile and electronics industries. However, in subsequent decades, state-led projects—including the fifth-generation computer, the fast breeder nuclear reactor, and uranium reprocessing—ended in failure. Current government subsidies run the risk of causing resource misallocation, crowding out more productive projects.

Takaichi embraces a vision of "partial self-sufficiency", advocating that all manufacturing industries should possess domestic production capabilities—a departure from Abe's approach of striking a balance between protectionism and internationalism. Abe encouraged the recruitment of foreign workers, while Takaichi has tightened the eligibility criteria. She plans to strengthen controls on overstaying foreign visas, unpaid medical insurance premiums, and land purchases by foreigners, as well as raise the thresholds and fees associated with visas and permanent residency. In 2024, Japan's population decreased by 0.75%, marking the sharpest decline since records began in 1968. The xenophobic atmosphere she has fostered may lead to a drop in the number of foreign workers, who are crucial to alleviating labor shortages in blue-collar sectors such as agriculture and elderly care in Japan.

On the political front, Takaichi lacks the dominant clout that Abe enjoyed in his time. While the ruling coalition has reclaimed a majority in the House of Representatives, it remains a minority in the House of Councillors, forcing the LDP to negotiate compromises with opposition parties to pass legislation and budgets. Additionally, her comments on "a Taiwan emergency" in the Diet have sparked Sino-Japanese diplomatic tensions. Economists at Goldman Sachs pointed out in November that the decline in Chinese tourists and Japanese consumer goods exports to China could reduce Japan's GDP growth by approximately 0.2%. What's more, China accounts for over 60% of global rare earth production and more than 90% of global rare earth processing volume—rare earths are indispensable raw materials for many of the strategic industries Takaichi intends to expand.

Over the past decade, public expenditure has accounted for roughly half of Japan's total GDP growth. Under the slogan of "proactive and responsible" fiscal policy, Takaichi unveiled an economic stimulus package of approximately 21 trillion yen in November, followed by the approval of an 18.3 trillion yen supplementary budget in December. Around 60% of this funding will be financed through new government bonds, even as Japan's government debt-to-GDP ratio hovers near 260%, among the highest globally. Cutting deficits could stall economic growth, while expanding deficits risks exacerbating inflation.

The current high approval ratings of the Takaichi cabinet should not be interpreted as widespread public endorsement of its economic policies. Nationalist rhetoric may boost support in the short term, but sustained price hikes and stagnant real wages will inevitably impact public opinion in the long run. Not only has her economic agenda been questioned by economists, but the media has also recently revealed that she spent a substantial sum on publicity during last year's LDP leadership election, and accepted corporate donations exceeding the legal limit as well as large sums from "mysterious" religious groups. Amid this confluence of controversies, neither her crafted public image—such as being "hardworking" and "sleeping only three hours a day"—nor her penchant for quoting anime lines can guarantee the long-term sustainability of her current high approval ratings.