Japan stimulus package 2025: Japan drops $135 billion stimulus as inflation spirals, experts warn of a true Minsky Moment – what is it?

Japan incentive package 2025: Japan’s new Prime Minister Sanae Takaichi has announced his first major economic move, a massive stimulus package worth ¥21.3 trillion ($135.4 billion) at a time when the country is already grappling with rising inflation and growing concerns about financial stability.

Japan’s Biggest Spending Plans After the Pandemic: $135 Billion Stimulus Package

The cabinet approved the plan on Friday, making it one of Japan’s biggest spending moves since the Covid pandemic, according to a report. The package includes ¥17.7 trillion in general account spending and ¥2.7 trillion in tax cuts, much higher than last year’s ¥13.9 trillion, according to a Reuters report. Takaichi, who has promised aggressive fiscal expansion, said the measures were prepared with “fiscal sustainability” in mind, according to the report.

Markets React with Tremors as Yen Falls and Bond Yields Rise

But the market’s reaction told a different story. The Japanese yen fell to 10-month lows and long-term government bond yields rose to record levels as investors expressed concerns about the country’s worsening financial situation. The size of the package and its dependence on new government debt increased these fears.
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More Government Bonds Expected to Finance the Package

Takaichi confirmed that the government will use higher-than-expected tax revenue and non-tax revenue to fund the plan, but the remaining shortfall will require additional issuance of Japanese government bonds (JGB), according to a Reuters report.

“However, for this fiscal year, the total amount of government bond issuance after combining the supplementary budget and the first budget is expected to be lower than last year’s post-additional total of 42.1 trillion yen,” Reuters reported. he said. Although the size of the additional government bond issuance to finance the stimulus package has not yet been finalized, it is expected to be larger than the ¥6.69 trillion issued for last year’s stimulus. by Reuters. The cabinet is expected to approve the additional budget to finance the package by November 28, and aims to receive parliamentary approval by the end of the year, according to the report. ALSO READ: New IRS IRA limits drop – see how rich you’d be if you saved this much annually

Japan’s Inflation Forecasts Updated Slightly Lower for 2026

Japan’s move could significantly boost the country’s economy in early 2026, but also deepen concerns about inflation and rising debts, according to the ING report. According to the report, economists expect that if the package gets parliamentary approval with the help of opposition parties, it will provide a noticeable increase in growth, bringing GDP to 1.4% on an annual basis in 2026, up from the previous forecast of 0.7%.

Much of the plan focuses on energy subsidies that will keep headline inflation down during the winter months. However, these effects can be partially eliminated by weakening the yen. While headline inflation is expected to fall below 2 percent next year, core inflation excluding food and energy, which is the main benchmark, is expected to remain above 2 percent for a while.

Due to these measures, inflation forecasts for 2026 were revised slightly lower. According to the ING report, economists now expect headline CPI to increase by 2.0% instead of 2.3%, while core inflation is expected to be 2.6% instead of 2.7%. At the same time, the package is expected to maintain pressure on the yen and increase demand-side inflation pressures.

Social Media Points to a Possible “Minsky Moment”

Meanwhile, some market watchers on social media X are calling this a potential “Minsky Moment.” This means a sudden collapse that could come after a long period of stability and speculation, according to the Investopedia report. According to the report, the concept, named after economist Hyman Minsky, describes how economies can move from stable finances to riskier behavior and eventually crisis as pressures increase.

FAQ

Will Japan issue more government bonds?
Yes, the plan calls for additional JGB issuance, possibly more than last year’s ¥6.69 trillion.

When will the additional budget be approved?
The cabinet targets November 28 with parliamentary approval by the end of the year.