Takaichi Seeks Voter Blessing For A New Fiscal Blowout

QE would later spread to Washington, London, Frankfurt, Sydney and beyond following the 2008 global financial crisis. While these QE dabblers normalized rates within a few years, Japan has yet to pull out the monetary intravenous tubes.

For all its quantitative tightening (QT) efforts, the BOJ still owns more than half of all outstanding JGBs and remains by far the largest holder of Tokyo stocks.

In 2025, Ueda got closer to extricating Japan from zero rates than Toshihiko Fukui, BOJ head from 2003 to 2008. Yet by 2009, rates were headed back to zero, and QE was back.

Ueda, of course, is trying to avoid the same fate. His biggest problem, arguably, is that the LDP essentially has one playbook: more stimulus. It has largely relied on fiscal and monetary expansion for seven decades. The party has ruled Japan with only two brief interruptions since 1955.

Now, even some senior LDP members admit that a quarter century of zero rates backfired. In this way, the plunge in the yen over the last decade is now coming back to haunt Tokyo.

The ways in which a weak yen deadened the urgency to level the playing field and increase competitiveness explain why Japan Inc today is watching with alarm as Chinese electric-vehicle maker BYD and artificial-intelligence upstart DeepSeek shake up their respective industries, in the way Japan might have in the 1980s.

Takaichi displays few signs that she might deviate from this formula. In this way,“Sanaenomics” is virtually indistinguishable from the strategy of Takaichi's mentor Shinzo Abe.

Yet Abe took some of his inspiration from the earlier-mentioned Takahashi, the economist from the 1920s and 1930s who served as finance minister, BOJ governor and, eventually, prime minister.

Takahashi is best remembered for a hyper-aggressive mix of monetary easing and aggressive fiscal expansion, along with efforts that modern economists would call debt monetization. Central banks buying ginormous blocks of debt directly from the government is as radical as any industrialized nation can get.

Many would say Takahashi ran the 20th century's most audacious experiment in so-called“Modern Monetary Theory.” All the debating over so-called MMT ignores that Takahashi effectively pioneered it. MMT holds that a country issuing debt in its own currency can borrow aggressively with little financial fallout or risk of default.

Ben Bernanke, the former US Federal Reserve chair, once told an audience that“Takahashi brilliantly rescued Japan from the Great Depression through reflationary policies.” In 2013, then-Prime Minister Abe said the“example of my forerunner Takahashi has emboldened me” in the battle against deflation.

That same year, Abe empowered his BOJ Governor Haruhiko Kuroda to grow the BOJ's balance sheet to a size bigger than Japan's US$4.2 trillion economy. The Kuroda era pushed the BOJ so deeply into government debt and the stock market that it still effectively remains trapped.

When Ueda replaced Kuroda in 2023, it fell to him to begin QT and then put some rate hikes on the scoreboard. This normalization process is now in jeopardy as Takahashi resurrects“Abenomics” in ways that could backfire anew.

“Takaichi is running on an end to excessive fiscal austerity - that's highly irresponsible,” says Robin Brooks, economist at the Brookings Institution.

“I've been flagging for a long time that we're in the early stages of a global debt crisis. Long-term government bond yields have risen sharply everywhere,” Brooks said.“Markets are losing patience with governments that are chronically unable or unwilling to bring public debt down. This is no time to pretend Japan's humongous debt isn't a problem. Denial isn't a plan.”