Japanese Prime Minister Sanae Takaichi on Wednesday rejected suggestions that her government’s draft economic blueprint triggered the sharp selloff in Japanese government bonds (JGBs), as investors continue to question whether Tokyo is moving away from decades of fiscal restraint while exerting greater influence over monetary policy.
Speaking in parliament, Takaichi said it was incorrect to attribute recent market turbulence to a policy document that has yet to receive cabinet approval.
“I do not believe that a single draft government document, which has not even been approved by the cabinet yet, is the cause of the market shock,” she said.
Register for Tekedia Mini-MBA edition 20 (June 8 – Sept 5, 2026).
Register for Tekedia AI in Business Masterclass.
Join Tekedia Capital Syndicate and co-invest in great global startups.
Her comments came after the benchmark 10-year Japanese government bond yield climbed to around 2.83% earlier this week, the highest level in roughly three decades, reflecting growing investor unease over Japan’s fiscal outlook, rising borrowing needs and uncertainty surrounding the future path of Bank of Japan (BOJ) policy.
The market reaction followed the release of the government’s draft annual economic blueprint, which introduced significant changes to Japan’s long-standing fiscal framework. The document removed previous language committing the government to improving fiscal health and urged that monetary policy be guided appropriately to support stronger economic growth.
Those changes fueled speculation that the government under Takaichi could be seeking closer coordination with the BOJ, potentially reducing the central bank’s room to tighten monetary policy even as inflation remains above target and interest rates gradually normalize.
The blueprint also proposes replacing Japan’s long-standing annual primary budget surplus target with a broader debt-to-GDP ratio objective, arguing that debt sustainability should be assessed over a longer period and alongside economic expansion rather than through yearly fiscal balances.
Economy Minister Minoru Kiuchi had earlier sought to calm markets by insisting the government remained committed to fiscal discipline and that there had been no change to the principle that monetary policy decisions remain solely within the BOJ’s authority.
The government’s emphasis on debt-to-GDP rather than annual budget balance reflects Takaichi’s broader economic strategy since taking office in October. She has advocated what she describes as a “responsible, proactive fiscal policy,” explaining that decades of underinvestment have weakened Japan’s industrial competitiveness and economic potential. Her administration has prioritized large-scale public investment in semiconductors, artificial intelligence, defense, infrastructure, and regional development.
However, investors have become increasingly concerned that expanding fiscal spending without clearly identifying funding sources could worsen Japan’s already strained public finances. Japan’s public debt exceeds 250% of gross domestic product, the highest ratio among advanced economies, making the government particularly vulnerable to sustained increases in borrowing costs.
The selloff has also reflected expectations that the BOJ may continue gradually raising interest rates after ending years of ultra-loose monetary policy. Higher domestic rates, combined with increased government bond issuance, have pushed yields sharply higher across the maturity curve.
Takaichi pushed back against suggestions that government policy was interfering with monetary decisions, saying multiple global factors drive financial markets.
“Interest rates, as well as foreign exchange rates, are determined by a variety of factors. Looking at today’s market moves, for example, there are influences from U.S. interest rates and employment data,” she said.
This comes as investors closely monitor the interaction between Japanese and U.S. bond markets. Stronger-than-expected U.S. Treasury yields have reduced the attractiveness of lower-yielding Japanese debt, while global investors have demanded higher compensation to hold JGBs as Japan exits years of extraordinary monetary accommodation.
The prime minister also addressed the persistent weakness of the yen, which remains near multi-decade lows against the U.S. dollar despite the BOJ’s policy normalization. Rather than signaling support for currency intervention, Takaichi argued that stronger economic fundamentals would provide more durable support for the currency.
She said boosting domestic investment, improving productivity, and strengthening Japan’s international competitiveness would raise the country’s potential growth rate and help sustain confidence in the yen over the longer term.
Takaichi also indicated that the ongoing political debate over temporary reductions in food consumption taxes could become an opportunity to build a more flexible tax system capable of adjusting consumption tax rates more readily in response to changing economic conditions.
The draft economic blueprint is expected to be finalized and approved by the cabinet later this month. Until then, investors are expected to continue scrutinizing any revisions to its language for signals about the government’s commitment to fiscal discipline, the independence of the BOJ, and the future direction of Japan’s economic policy.
The outcome carries broader significance beyond Japan. As the world’s third-largest economy and one of the largest sovereign debt markets, Japan can influence global capital flows, currency markets, and borrowing costs through shifts in its fiscal policy and bond yields. This is particularly so as central banks worldwide continue navigating the balance between supporting growth and containing inflation.