Japan's new Prime Minister Sanae Takaichi made a bold debut with a mega economic move: unveiling a huge ¥21.3 trillion ($135.4 billion) stimulus package. This budget is one of the biggest since COVID, aimed at tackling rising prices and fiscal worries.

On Friday, the cabinet gave a big thumbs-up to this plan, which includes ¥17.7 trillion in general spending—way above last year's ¥13.9 trillion—and ¥2.7 trillion in tax cuts. Takaichi promised it balances aggressive growth with “fiscal sustainability.”

But guess what? The markets yelled a different story! The Japanese yen dropped to a 10-month low, while government bond yields jumped to record heights. Investors got nervous over Japan's increasing debt because much of the spending depends on new government borrowing.

Takaichi explained the funding will come partly from higher-than-expected tax and other incomes. However, the rest will need fresh Japanese Government Bonds (JGBs). She said, “But the total amount of government bond issuance after the supplementary budget, combined with the initial budget, for this financial year is expected to be lower than last year's post-supplementary total of 42.1 trillion yen.” While the exact bond total isn’t decided yet, it’s expected to be higher than last year’s ¥6.69 trillion.

The cabinet plans to approve this extra budget by November 28, hoping for parliament’s nod before year-end.

What’s the forecast? Economists from ING say this stimulus could boost Japan’s economy sharply in early 2026, increasing GDP growth to 1.4% compared to earlier estimates of 0.7%. Much of the help comes from energy subsidies designed to cut inflation this winter. Yet, the weak yen might cancel some benefits.

Inflation forecasts were slightly lowered: headline inflation now expected at 2.0% (down from 2.3%), and core inflation (without food and energy) at 2.6% (down from 2.7%). Despite this, pressure on the yen and inflation will remain high.

Some on social media, like the account zerohedge, warn Japan might face a “Minsky Moment” — a sudden market crash after long stability. They tweeted, “Japan is about to issue $150BN in stimulus ($1TN indexed to US economy) to 'combat the impact of inflation' that was sparked by the previous round of stimulus. Yes, this is a Minsky Moment.”

FAQs:

• Will Japan issue more government bonds? Yes, likely more than last year’s ¥6.69 trillion.
• When will the supplementary budget be approved? Cabinet approval by November 28; parliamentary approval expected by year-end.

So, Japan’s big economic gamble is on! Will it save the day or trigger market jitters? Stay tuned!