Japan’s Fiscal Policy and Election Promises Shape Economic Outlook

Japan’s government has advanced new fiscal measures and tax pledges in response to rising living costs and ahead of the February 2026 general election. These developments are occurring as the country manages high public debt and changing market conditions.

In November 2025, the government approved a supplementary budget totaling approximately ¥21.3 trillion to address cost-of-living pressures. This fiscal package was designed to provide targeted relief as inflation affected household expenses, particularly for food and daily necessities.

Prime Minister Sanae Takaichi, who became Japan’s first female prime minister in October 2025, called a snap general election for February 8, 2026. During the campaign, she pledged to suspend the 8 percent consumption tax on food and non-alcoholic beverages for two years if her coalition remained in power.

The ruling coalition’s platform also included a ¥20 trillion stimulus and the temporary suspension of the 8 percent consumption tax on food. These commitments were made as part of broader efforts to support households and stimulate the economy.

What the numbers show

• The supplementary budget approved in November 2025 was about ¥21.3 trillion
• Japan’s tax revenue for the fiscal year through March 2026 is forecast at ¥80.7 trillion
• The government plans to issue approximately ¥11 trillion in additional bonds to fund the package
• Japan’s debt-to-GDP ratio stands at around 230 percent

Markets responded to the tax-cut pledge with rising Japanese government bond yields and a weaker yen. The combination of new spending and tax relief measures contributed to uncertainty among investors regarding fiscal discipline and future funding sources.

To support the economic package, the government indicated plans to issue about ¥11 trillion in additional bonds. This decision comes as tax revenue for the fiscal year through March 2026 is projected to reach a record ¥80.7 trillion, exceeding earlier estimates.

Japan’s debt-to-GDP ratio remains the highest among advanced economies, standing at approximately 230 percent. This level of public debt has drawn attention as the government pursues both stimulus and tax relief measures.

Industry reaction

According to published reports, investors and analysts expressed concern that expansive fiscal measures combined with unclear funding sources could affect market confidence. These reactions followed announcements of new spending and tax suspension plans.

Exit polls on election day indicated that the ruling Liberal Democratic Party under Takaichi was poised for a landslide victory, securing a majority and enabling further pursuit of her economic agenda. This outcome would allow the coalition to advance its fiscal and tax policies as outlined during the campaign.

* This article is based on publicly available information at the time of writing.