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Japan PM retains economy minister in cabinet reshuffle, vows to speed up spending plans
By Leika Kihara and Makiko Yamazaki TOKYO, Sept 17 (Reuters) - Japanese Prime Minister Sanae Takaichi vowed to fast-track policies to boost growth after retaining her key ministers in a cabinet
TOKYO, Sept 17 (Reuters) – Japanese Prime Minister Sanae Takaichi vowed to fast-track policies to boost growth after retaining her key ministers in a cabinet reshuffle, including reflationist ally Minoru Kiuchi as economy minister, signalling her determination to implement her big spending plans.
Takaichi’s policies have proven contentious given the enormity of Japan’s public debt. Her decision to pursue a two-year tax cut on food items sparked a bond selloff as well as criticism from the US, putting her under pressure to heed market calls for fiscal discipline.
Takaichi said her new cabinet will seek to heighten Japan’s economic growth potential by boosting investment, corporate profits and household income, which in turn will increase tax revenues.
“Without economic growth, we cannot maintain fiscal sustainability,” Takaichi told a news briefing after the announcement of the cabinet lineup.
“Now is the time to speed up efforts to execute our responsible and proactive fiscal policy,” she said.
In the new cabinet, Kiuchi will be tasked with enhancing dialogue with markets and laying out the details of the administration’s growth strategy, Takaichi said.
“We won’t engage in wanton fiscal expansion,” Kiuchi said after the announcement of his re-appointment, adding that he will strive to dispel any concern markets had over Takaichi’s policies.
Takaichi, however, also retained as finance minister Satsuki Katayama — a former finance ministry bureaucrat regarded as having a conservative stance towards fiscal policy.
That reappointment is likely to be welcomed by bond markets wary of Takaichi’s plans to increase government spending, which in turn could boost debt issuance.
“Markets are getting sensitive to fiscal risks, so stabilising long-term interest rates is turning into a very important challenge for Japan’s economic growth,” said Keiji Kanda, a senior economist at the Daiwa Institute of Research.
“That’s probably why Takaichi decided to retain many of the cabinet members she trusts, such as Katayama. That would allow her to proceed steadily with steps taken so far and focus on guiding fiscal policy stably,” Kanda said.
Katayama played a key role negotiating with US Treasury Secretary Scott Bessent on a rare joint US-Japan yen intervention in late July, an effort that underscored the countries’ close cooperation. Her reappointment underscores continuity in foreign exchange policy.
Other key ministers, including some of her competitors in last year’s race to lead the ruling party, such as Foreign Minister Toshimitsu Motegi and Defence Minister Shinjiro Koizumi, saw no change in their posts.
The reshuffle was aimed mostly at having the Japan Innovation Party, Takaichi’s ruling Liberal Democratic Party’s coalition partner, share responsibility on policy-making by joining the cabinet. The premier appointed Hiroshi Nakatsuka from the party as minister in charge of regulatory reform.
Of the 18 minister posts, eight were filled by incumbents including trade minister Ryosei Akazawa who oversees Japan’s trade negotiations with the US.
The yield on the benchmark 10-year Japanese government bond hit three-decade highs this week on concern Takaichi’s big spending plans could add to Japan’s public debt which, at twice the size of its economy, is the largest among advanced nations.
But with households smarting from rising costs of living, she risks hurting her approval ratings by backing down on her pledge to cut tax and boost spending.
Takaichi’s pledge to cap new government bond issuance around 40 trillion yen ($256 billion) for the fiscal 2027 budget is already facing scrutiny after budget requests swelled to pandemic-era levels.
Japan also faces the prospect of higher defence spending in a strategy review this year.
The cost of funding Japan’s debt is increasing as the central bank raises interest rates and slows bond purchases in an effort to wean the economy off decades of massive stimulus.
The Bank of Japan is widely expected to hike its main policy rate by 25 basis points to 1.25% on Friday.
($1=156.1700 yen)
(Reporting by Leika Kihara and Makiko Yamazaki; additional reporting by Kentaro Sugiyama, Tamiyuki Kihara, Yoshifumi Takemoto and Takaya Yamaguchi; Editing by Clarence Fernandez and Edwina Gibbs)
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