Minoru Kiuchi, who serves as the economic revitalization minister, outlined the new government’s plan to speed up economic expansion so more people can benefit from any recovery.

His comments reveal how Prime Minister Sanae Takaichi’s team aims to stimulate the economy through increased government spending, adopting a different approach from the previous leadership, which was more concerned about inflation caused by the weak yen.

“A weak yen pushes up import costs and domestic prices, which in turn effectively weighs on the purchasing power of households and some companies,” Kiuchi explained during a press briefing.

“But there are also merits such as the boost it gives to exporters’ profits and domestic investment,” he continued, noting that currency values should move steadily based on economic fundamentals.

New administration shifts economic focus

The weakening yen has created political challenges for government officials in recent years, as it makes imported goods more expensive and drives up overall inflation. Japan’s inflation rate has stayed above the Bank of Japan’s 2% goal for more than three years.

The central bank ended its massive ten-year stimulus program in 2024 and raised interest rates twice through January, following politicians’ demands for action against the yen’s sharp decline.

Financial markets expect the bank to keep rates unchanged at 0.5% when its two-day policy meeting concludes Thursday. Investors are waiting for clearer signals about the new government’s plans before the bank potentially raises rates to 0.75%.

“We will continue to closely monitor the impact of currency moves on Japan’s economy,” Kiuchi stated. “As for the rising cost of living, we’ll deal with that by compiling a comprehensive economic package,” he added.

Takaichi, known for supporting increased government spending, is putting together an economic aid package that sources have told Reuters will likely top last year’s $92 billion to help families cope with inflation.

Market reactions and fiscal concerns

While maintaining fiscal responsibility in mind, Japan can enhance its long-term growth potential by fostering demand and sustaining a robust job market, Kiuchi explained.

He said there are different opinions about how much extra demand Japan’s economy needs, which is why both the government and central bank are watching inflation and wage trends carefully.

Japanese stock prices have surged higher as investors anticipate significant spending from Takaichi, although some experts worry that her plans could stress the country’s already strained finances.

Credit rating agency Moody’s confirmed Japan’s A1 debt rating on Monday, pointing to increasing tax collections supported by steady domestic spending and solid economic growth measured in current prices.

However, the International Monetary Fund cautioned that any government spending should be focused and short-term. “Japan’s economy will go back to potential growth. They don’t need to provide (stimulus),” said Krishna Srinivasan, who heads the IMF’s Asia and Pacific Department, in an interview with Reuters.