Japan's newly appointed Prime Minister Sanae Takaichi is facing mounting economic pressure as government data reveals real wages have declined for the ninth consecutive month through September 2025. Despite a 1.9% year-over-year increase in nominal pay, inflation at 2.9% eroded these gains, resulting in a 1.4% drop in real wages and stagnating household purchasing power since 2021.
Takaichi, Japan's first woman prime minister, has committed to reviving Abenomics with a focus on ultra-easy monetary policy, fiscal stimulus, and structural reforms. She is advancing a 13.9 trillion yen ($92.2 billion) spending package to aid households, including subsidies for electricity and gas bills, and support for small and medium enterprises to raise wages. However, this stimulus risks fueling inflation, which has exceeded the Bank of Japan's 2% target for 41 months.
Economists express concerns: Marcel Thieliant of Capital Economics warned that populist measures could enhance inflationary pressures, while Justin Feng of HSBC highlighted potential damage to Japan's fiscal credibility, given its debt-to-GDP ratio of nearly 250% in 2023. Household spending rose by 1.8% in September, but fell short of the 2.5% forecast, raising fears of an economic contraction in the third quarter. The weak yen, near an eight-month low against the dollar, is exacerbating import costs and inflation worries.
The Bank of Japan has held its benchmark rate at 0.5% for six consecutive meetings, with Governor Kazuo Ueda asserting the central bank is not behind the curve. Takaichi has moderated her stance, urging caution on rate hikes until sustainable inflation is achieved, as economists predict gradual policy normalization ahead.
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