Takaichi Proposes Tax Cuts and Cash Payouts in Leadership Bid

Sanae Takaichi, a veteran lawmaker, has announced her campaign pledge to implement a combination of income tax cuts and cash payouts to households as she vies for leadership of Japan’s ruling party. Takaichi made her intentions clear on September 18, 2023, as she prepares to run in the October 4 election to succeed outgoing Prime Minister Shigeru Ishiba. If successful, Takaichi could make history as Japan’s first female prime minister.

Takaichi, who is viewed by markets as a fiscal dove, outlined her agenda during a press conference where she emphasized her plans to eliminate an additional gasoline tax promptly. She also aims to expand grants to local governments, according to her policy statement. Alongside her proposals for tax reform, Takaichi intends to establish a committee focused on foreign investment in Japan, aiming to enhance the scrutiny of such investments and consider more stringent measures regarding foreign property purchases.

In her campaign, Takaichi has expressed strong opposition to the Bank of Japan’s recent interest rate hikes, advocating for increased government spending to stimulate the fragile economy. Following a recent two-day meeting, the Bank of Japan opted to maintain interest rates at 0.5 percent, although two members of the board voted against this decision. This dissent has led to speculation that the bank may begin to taper its extensive monetary stimulus sooner than anticipated.

Analysts from Mizuho Securities noted that Takaichi’s stance could mitigate market concerns over Japan’s deteriorating fiscal situation. They remarked, “It seems Takaichi will nod to market concern over Japan’s worsening finances.” They also indicated the importance of closely monitoring what she may omit from her pledges during her press conference.

The analysts further suggested that if Takaichi’s campaign does not prioritize abolishing the consumption tax on food, maintaining monetary easing, and advocating for weak yen policies, selling pressure on government bonds and the yen may ease. This perspective is informed by her previous aspirations, highlighting the delicate balance she must navigate between fiscal responsibility and public sentiment.

As Takaichi prepares for the upcoming leadership race, her proposals will be scrutinized closely, and their potential impact on Japan’s economy will be a key focus for both voters and markets alike.