Japan rolled out a sweeping ¥21.3 trillion ($135.5 billion) stimulus package on Friday, an economic jolt that lands at a moment when households are groaning under cost pressures and policymakers are wrestling with a currency that has tumbled to a ten-month low.
The package, reported by public broadcaster NHK, lays out a menu of measures that the cabinet has divided into three ambitions: easing rising prices, pushing for a sturdier economy, and strengthening both defense and diplomatic capacities.
For ordinary households, the most tangible relief will come through expanded local government grants and new subsidies for electricity and gas bills. Those subsidies kick in next January and run for three months, worth roughly ¥7,000 for a standard household. Taxes on gasoline will also disappear under the plan—another nod to consumers buckling under energy costs.
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But the economic blueprint goes beyond household relief. Tokyo is also preparing a 10-year fund to boost shipbuilding capability, a sector seen as strategically relevant given Japan’s maritime security priorities. And in line with commitments already signaled, the government says it remains on course to raise defense spending to 2% of GDP by fiscal 2027, a landmark shift for a country that has long maintained more modest defense outlays.
Yet the bigger story humming beneath the fiscal numbers is the Bank of Japan’s increasingly delicate position.
Kazuo Ueda, the BOJ governor, signaled more openly than before that a rate hike in December is on the table, saying he wants “just a bit more data” on next year’s wage-growth outlook. He warned parliament that the yen’s slump risks feeding into underlying inflation through higher import costs and broader price increases. And while he stopped short of announcing a shift, he made it clear the central bank will discuss the “feasibility and timing” of a hike in upcoming meetings—language that marks a departure from earlier, more neutral statements that the BOJ had no preset timeline for policy changes.
The yen’s prolonged slide has turned into a political headache for Prime Minister Sanae Takaichi, whose dovish reputation has already fueled market bets that future BOJ tightening could be delayed. As the currency touched a fresh 10-month low, the pressure intensified. Her finance minister, Satsuki Katayama, on Friday openly signaled the potential for currency intervention to rein in further yen weakness—a reminder of how politically charged the exchange rate has become.
Ueda’s tone underscored that shift. His point was simple: the yen’s weakness no longer looks like a temporary price distortion.
“Compared with the past, the impact of currency moves on inflation may have become bigger because companies have become more active in raising prices and wages,” he told lawmakers. If that behavior becomes entrenched, he added, it could alter inflation expectations and push underlying inflation higher.
It was a notable turn for a central bank that, until recently, treated yen-driven price bumps as a fleeting annoyance rather than a structural concern. The remarks also followed comments from BOJ board member Junko Koeda, who said the central bank must keep raising real interest rates given the “relatively strong” price increases still coursing through the economy.
That growing chorus is why analysts like Takeshi Minami of the Norinchukin Research Institute now expect the BOJ to lift rates in December. As he put it, “The government doesn’t want a weak yen and would tolerate a rate hike to combat declines in the currency.”
The BOJ’s next policy meeting is scheduled for December 18–19, and many in the market now see that gathering as a decisive moment—either for a rate move or a clearer roadmap toward one. Some expect the central bank to wait until January, but the direction of travel appears to be settling.
For now, Japan remains in a transitional zone. The central bank ended its decade-long ultra-stimulus regime last year and has raised rates twice—one of them in January—but has held steady at 0.5% since then, even as inflation has stayed above the bank’s 2% target for over three years.
Ueda insists the stance hasn’t fundamentally shifted: if economic conditions evolve as forecast, the BOJ will continue gradually hiking rates. He still expects underlying inflation to reach the 2% mark from the latter half of fiscal 2026 through fiscal 2027. But the caveat is clear. Before pulling the trigger, he wants clarity on whether Japanese companies will push ahead with wage increases in next year’s labor negotiations—a key ingredient in Japan’s slow-burn bid to anchor inflation sustainably.
“We want to take just a bit more time,” Ueda told parliament, explaining why policy remained unchanged last month. BOJ branches nationwide are still gathering data and surveying businesses, he said.
Now Tokyo has stepped in with one of its biggest stimulus moves in years, designed to soften the blow of rising prices and stabilize the economic mood. But with the currency under strain and the BOJ turning incrementally more hawkish, Japan’s macroeconomic story is no longer just about support—it’s increasingly about timing, political pressure, and the fine line between stabilizing inflation and choking off the fragile recovery.