Japan's Takaichi launches ¥370tn spending push, unnerving bond investors

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Japanese Prime Minister Sanae Takaichi's economic programme still rests on a blueprint to inject ¥370tn (£1.7tn) into the economy, a package she frames as a way of doubling the country's growth rate, according to the Guardian. What began as a question about the growth target has settled into a question about financing, with international investors asking where the money is to come from and warning of a Liz Truss-style backlash in what the Guardian describes as the world's largest sovereign debt market. No detail on funding sources or timing has been established, so the government has yet to set out a credible financing path. The pressure has now shown up in the currency as well as in bonds. Nikkei Asia reports that the yen has fallen to its weakest level in decades, and that market participants responded by increasing bets that the Bank of Japan will raise interest rates earlier than previously expected. Whether that move reflects the spending plan specifically is not established by the available reporting, but it narrows Takaichi's room: a weaker currency and a market pricing in earlier tightening point towards higher borrowing costs at the moment the government has still to explain how ¥370tn would be funded. The immediate test is unchanged in substance and sharper in timing.

Sanae Takaichi is Japan's prime minister and has made a large-scale fiscal expansion the opening move of her economic agenda. The proposal is to channel ¥370tn (£1.7tn) into the economy with the declared aim of doubling Japan's growth rate. Japan's government bond market is, per the Guardian, the largest sovereign debt market in the world, which makes any question over how such spending would be financed a concern well beyond Japan. The comparison investors reach for is Liz Truss, whose UK government triggered a sharp market reaction over unfunded fiscal plans; whether that parallel holds here is unconfirmed and is being raised as a warning rather than a description of events so far.