Japan PM Takaichi: Efforts will continue to gradually reduce the debt-to-GDP ratio and ensure fiscal sustainability

Japan PM Takaichi: Efforts will continue to gradually reduce the debt-to-GDP ratio and ensure fiscal sustainability

Japan PM Takaichi: Efforts will continue to gradually reduce the debt-to-GDP ratio and ensure fiscal sustainability

Prime Minister Sanae Takaichi has emphasized her administration’s commitment to balancing economic growth with fiscal responsibility, as Japan seeks to address its historically high public debt burden. With government debt exceeding 226% of GDP in recent years, Takaichi’s “responsible, proactive fiscal policy” aims to stimulate investment while stabilizing debt dynamics.

Recent fiscal measures reflect this dual focus. The FY2026 budget, finalized amid market volatility, maintained new bond issuance below 30 trillion yen for the second consecutive year, reducing reliance on debt financing to a nearly three-decade low. This aligns with projections from the Council on Economic and Fiscal Policy, which noted a primary surplus for the first time in 28 years in FY2026. The government also suspended a 8% food tax temporarily, a move that initially triggered bond and yen selling but stabilized after the ruling party’s election victory.

Takaichi’s approach, however, faces scrutiny. The International Monetary Fund (IMF) has urged caution, warning that Japan’s high debt levels leave its economy “exposed to a range of shocks.” Oxford Economics revised its fiscal outlook, forecasting a primary deficit of 2%-3% of GDP for 2025-2027, with deficit reduction expected only from 2028 amid rising bond yields. Analysts highlight the tension between expanding public investment—such as in resilience-building and growth-oriented projects—and maintaining market confidence.

The government’s medium-term projections, presented in January 2026, suggest a gradual decline in the debt-to-GDP ratio, supported by nominal GDP growth and spending restraint. Takaichi has also signaled flexibility in fiscal targets, proposing multi-year evaluations of primary surplus goals instead of annual assessments.

Japan’s unique fiscal structure, including large public sector assets and low borrowing costs, has historically supported debt sustainability. However, rising global interest rates and aging demographics pose ongoing risks. Takaichi’s challenge lies in reconciling growth-oriented policies with fiscal discipline—a balancing act that will determine Japan’s long-term economic resilience.

(https://www.reuters.com/world/asia-pacific/japan-pm-faces-challenges-selling-proactive-fiscal-policy-bond-vigilantes-2026-02-19/): Reuters, February 19, 2026
(https://japan.kantei.go.jp/104/actions/202601/22keizai.html): Japanese Cabinet Office, January 22, 2026
(https://www.oxfordeconomics.com/resource/japans-fiscal-policy-will-remain-loose-which-increases-risks-to-debt-sustainabilit/): Oxford Economics, December 2025
(https://www.stlouisfed.org/on-the-economy/2023/nov/what-lessons-drawn-japans-high-debt-gdp-ratio): St. Louis Fed, November 2023