JAPAN’S HIGH-WIRE ECONOMIC CHALLENGE
PM Sanae Takaichi’s record landslide victory in the February 8 lower house elections has restored political stability following a protracted period of instability since the resignation of Shinzo Abe in 2020.
Having secured a two-thirds majority in the lower house, Takaichi also has a free rein to implement her policy agenda, though, like her predecessors (and most other current G7 leaders), she will have to contend with enormous fiscal constraints. Takaichi has told parliament that her government would “break away from years of excessive fiscal austerity and a prolonged pattern of underinvestment in the future,” but would not pursue “reckless fiscal policies that could undermine market confidence.” Converting this rhetoric into legislative action will be a high- wire challenge. Indeed, a look at the history of Japan’s numerous stimulus packages and government spending trends over the past three decades does not offer a lot of grounds for confidence, even if Koizumi’s 2006 Japan Post reforms and the 1980s Japan National Railway privatisations did help to deliver innovations in public and financial services.
Japan’s government debt-to-GDP ratio, at around 236% of GDP, is frequently cited as the largest constraint, but it often appears to be cited to allow other G7 and Eurozone governments to put the proverbial ‘lipstick on a pig’ of their own debt piles. However, Japan has been the world’s largest creditor for more than three decades, with a NIIP (Net International Investment Position) in late 2025 of ca. USD 3.66 trillion. As such, it has a net debt-to-GDP ratio of around 120%, similar to France and the USA, better than Italy (ca. 137%), though worse than the UK (92%), Germany (62%), and Canada (52%). But it is
worth noting that, in USD terms, its NIIP position peaked in 2012, easing through the rest of the decade before returning to its prior peaks in 2021 and 2024, primarily thanks to bouts of JPY weakness. The initial peak in 2012 and drop thereafter were largely due to a sharp rise in energy imports following the 2011 Fukushima disaster, which resulted in energy imports as a percentage of energy use jump from ca. 80% to 96.1% in 2012, and then easing to ca. 87% currently.
JAPAN’S RELIANCE ON ENERGY AND RAW MATERIALS IMPORTS
Japan’s reliance on energy and raw materials imports is, per se, a key vulnerability — above all in a fragmenting world where energy and supply chain security have become a, if not the, primary concern, and particularly given the likelihood of exponential power demand growth, paced by AI data centres. It is little wonder that Takaichi (like a good number of her recent predecessors as PM) is looking to restart many of Japan’s idled nuclear power plants, even though public opinion still has many doubts about nuclear power plant safety, though grudgingly agree with successive governments’ narrative that nuclear power is a necessity. But while nuclear power will help to meet increasing power demand, it is anything but a panacea for Japan’s growth challenges, and, like most other developed countries, it also faces an acute and costly need to build out and upgrade its power grids.
Both the BoJ and the Ministry of Finance (MoF) see Japan’s potential GDP rate in the region of 0.5%–0.7%. There are many structural obstacles to accelerating this, many of which are well documented, amongst others: an ageing demographic, low birth rate, low female participation in the labour force, near-zero productivity
TAKAICHI HAS TOLD THAT HER GOVERN “BREAK AWAY FROM EXCESSIVE FISCAL AND A PROLONGED UNDERINVESTMEN IN THE SHORT TER
30 | ADMISI - The Ghost In The Machine | Q1 Edition 2026
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40
