The limits of Takaichi’s ‘Japan is back’

(Edited and refined by Candice Chan, with the assistance of AI translation.)

Sanae Takaichi became Japan’s first female prime minister in October 2025 and led the Liberal Democratic Party (LDP) to a two-thirds majority in a snap general election in February 2026. She won a clear mandate to revive the economy, restore Japan’s technological edge, accelerate its military build-up and take a tougher line on China. Yet less than a year into her premiership, that agenda is already coming under intense strain. The yen is hovering near a 40-year low, yields on ten-year government bonds have hit 3% for the first time in three decades, the cost of living continues to rise, and business and bureaucratic elites are beginning to question her style of governance. Relations with China are frozen, while US support is becoming increasingly unpredictable.

The real danger lies not in the failure of any single policy, but in strategic overreach. Takaichi wants Japan to have a stronger military, more advanced technology, a more dynamic economy, a stronger social safety net and greater strategic autonomy — all at the same time. Yet these ambitions run up against the realities of an ageing population, a shrinking workforce, a huge public debt burden and heavy dependence on imported energy.

Takaichi believes Japan’s malaise stems not only from structural problems but also from a loss of confidence. Taking former British prime minister Margaret Thatcher as her political role model, she has declared that “Japan is back”. Drawing on her provincial middle-class roots and her direct engagement with voters through social media, she has cast herself as a reformer taking on political dynasties, factionalism and bureaucracy. Her brand of nationalism resonates particularly strongly with voters who remember the prosperity of the 1980s and feel a sense of decline at seeing Japan overtaken by China.

Yet Takaichi is also an LDP veteran with three decades of political experience. She is at once a product of the establishment and a self-styled challenger to it. Initially, this dual identity let her combine an insurgent’s appeal with the establishment's political machinery, but it also means she must deliver tangible results. Ultimately, voters care less about passion and symbolism than about real incomes, economic security and whether the government can actually get things done.

The bond market’s veto

The toughest constraint comes from the financial markets. Takaichi plans to mobilise some 370 trillion yen (US$2.4 trillion) in public and private investment over 14 years across 17 industries, including artificial intelligence. At the same time, she intends to raise defence spending to 2% of gross domestic product (GDP) and strengthen Japan’s intelligence, shipbuilding and economic security capabilities. She has also capped petrol prices and pledged to cut the consumption tax on food and non-alcoholic beverages from 8% to 1% from April 2027.

Each of these policies makes sense on its own. Japan needs to raise productivity and strengthen its defences, while also easing the burden of imported inflation on households. But Japan already carries the heaviest public debt burden among advanced economies. Rising government bond yields are pushing up debt-servicing costs even as government ministries continue to submit record spending requests. Investors fear that changes to fiscal rules could simply become a licence for yet more borrowing.

Monetary policy only sharpens the contradiction. A weak yen drives up food and energy prices, putting pressure on the Bank of Japan to tighten policy. Higher interest rates can help stabilise the currency and curb inflation, but they also raise borrowing costs for the government and businesses, blunting the effects of fiscal stimulus. Even coordinated US-Japan intervention in the currency market can offer only temporary relief. The government cannot simultaneously sustain fiscal expansion, cheap credit, a strong yen and low inflation.

The bond market has therefore emerged as an external player with an effective veto over government policy. Every major initiative must not only win the backing of parliament and voters, but also convince investors that additional spending will generate sufficient gains in productivity and government revenue. Takaichi’s electoral victory may allow her to overpower her political opponents, but it cannot sweep aside the constraints of debt, interest rates and inflation.

Headline inflation of below 2% also obscures the reality facing ordinary households. Prices of essentials such as coffee, prepared foods and kerosene have in some cases risen by more than 20%, while household inflation expectations are at their highest since 2006. Slower official inflation does not mean that food and energy have suddenly become affordable. The weak yen reinforces a growing perception that, even as the state pursues greater national power, the economic security of ordinary households is steadily eroding.

Cuts in food taxes and petrol subsidies may be politically necessary, but they risk reducing government revenue without actually raising productivity or strengthening energy resilience. If financed through borrowing, they merely shift today’s burden onto future generations.

Meanwhile, cultural issues such as preserving male-only succession to the imperial throne and penalising the desecration of the national flag may appeal to conservatives, but they are far removed from the economic pressures confronting ordinary households. Takaichi has attracted women, younger voters and some populist voters because she represents change. If her agenda becomes too heavily focused on cultural nationalism, that coalition could begin to unravel.

The Taiwan Strait and the US factor

Takaichi has said that a Chinese attack on Taiwan could constitute a situation threatening Japan’s survival and therefore provide grounds for Japanese military action. There is a clear strategic logic behind her assessment: a conflict in the Taiwan Strait would threaten Japan’s southwestern islands, sea lanes, semiconductor supplies and the US-Japan alliance. But her position also marks a shift away from Japan’s longstanding strategic ambiguity towards a more explicit stance.

Beijing has portrayed Takaichi as the face of Japan’s remilitarisation and could step up pressure through regulatory measures, trade restrictions, supply chains and operations around the Senkaku Islands. Yet China remains one of Japan’s most important trading partners, and a prolonged confrontation would come at a heavy cost to Japanese businesses.

A deeper vulnerability in Takaichi’s strategy is its reliance on US support. Washington wants Japan to shoulder more responsibility for its own security, but the Trump administration may also be prepared to strike selective deals with Beijing when it suits US interests. If Washington and Beijing reach an accommodation that sidelines Japanese interests, Tokyo could find itself bearing the costs of a harder line on China without reliable diplomatic backing from its principal ally.

This creates a dangerous dilemma over the limits of the alliance. If Beijing concludes that pressuring a US ally merely prompts Washington to compromise, it may be tempted to push further. If Tokyo comes to doubt the reliability of US support, it could accelerate efforts to build more autonomous military and intelligence capabilities. Even if none of the parties intends to go to war, these dynamics could deepen the regional security dilemma.

Implications for East Asia

First, Japan’s defence build-up is unlikely to be reversed even if Takaichi’s political standing weakens. China’s growing military power, mounting pressure in the Taiwan Strait and East China Sea, North Korea’s missile threat and Russia’s increasingly assertive posture all provide compelling reasons for Japan to strengthen its defences. The real questions are how quickly the build-up will proceed, how it will be financed and whether it can retain political legitimacy.

Second, the US-Japan alliance may become more capable but also more transactional. Tokyo will not abandon the alliance, but it will seek greater autonomy as insurance against abrupt shifts in US policy. The challenge will be to ensure that greater Japanese autonomy reinforces coordination with the US rather than sends mixed signals over Taiwan.

Third, Japan-China relations are likely to become more volatile and compartmentalised. Neither country can easily walk away from their economic interdependence, but both are strengthening their ability to withstand economic coercion. Japan is seeking to diversify its rare-earth supplies, including by developing seabed resources around Minamitorishima, but China still dominates the entire industrial chain, from mining and separation to refining and manufacturing. The likely future is therefore one in which trade continues even as strategic tensions flare up repeatedly.

Fourth, Taiwan gains a more vocal supporter, but also faces the risks that come with stronger signalling. Japan’s public expressions of concern can strengthen deterrence, but tough rhetoric without the operational planning, fiscal capacity and US coordination to back it up could instead increase the risk of miscalculation.

Fifth, Southeast Asia will become an increasingly important arena for Japanese strategy. ASEAN welcomes Japanese infrastructure, technology and maritime capacity, as well as the strategic balance that Japan can provide, but it has no desire to join an anti-China bloc. Fiscal constraints will force Tokyo to focus its resources on areas such as coastguard capabilities, digital standards, the energy transition, resilient supply chains and high-quality infrastructure.

With Indonesia and Malaysia joining the China-led World Artificial Intelligence Cooperation Organization (WAICO) while keeping their distance from the US-led Pax Silica initiative, ASEAN’s strategic orientation may be gradually tilting towards China.

Takaichi’s political career is far from over. Her approval ratings remain above 50%, she commands an overwhelming majority in parliament, and the opposition has yet to offer a credible alternative. But she cannot continue to rely on novelty, political will or the slogan that “Japan is back”.

She must now set clear priorities. Industrial investment needs a credible financing plan and genuine private-sector participation. Support for households must be targeted and time-limited. Defence ambitions must be matched by sustainable resources. The Bank of Japan must be allowed to continue normalising monetary policy. Businesses, bureaucrats and parliament must be treated as partners in implementing policy. And Japan’s China strategy must balance deterrence with crisis management and economic stability.

The real test for Takaichi is not whether she can restore the Japan of the 1980s — that era cannot be recreated — but whether she can build sustainable national strength for a new age defined by an ageing population, technological rivalry and uncertainty over the future of Japan’s alliances. Her election victory gave her the mandate. Markets, institutions and geopolitics will determine whether she can turn that mandate into lasting power.

This article was first published in Lianhe Zaobao as “高市建设更强大日本的愿景面临瓦解风险”.

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