Moribund Economy Takaichi’s Greatest Challenge

Western conservatives have two new ‘rock star’ leaders helming foreign nations. Both idolise the late Margaret Thatcher. Both face daunting tasks of reforming countries with enduring economic woes, though of different kinds and severity. Consequently, each is taking a near-polar opposite approach to the other.

When Javier Milei stormed to the presidency of Argentina, he was tasked with turning around an economy that, after decades of left-wing populist cronyism, had collapsed from the richest country in the world at the turn of the 20th century to a hyper-inflationary basket-case in the early 21st. Milei’s austerity agenda is perhaps most identical to Thatcher’s, exemplified by his famous campaign symbol, the chainsaw.

On the other side of the Pacific, Japanese PM Sanae Takaichi is, like Thatcher, the first female leader of her nation. She’s also inherited an economy which is sclerotic. Japan has been ruled, almost unbroken, for the last 80 years, not by left-wingers but by the centre-right LDP. While, like Milei and Thatcher, she is alleviating the heavy hand of government from stifling the economy, her solution is stimulus rather than strict austerity.

Perhaps showing that economics is never a one-size-fits-all proposition, Takaichi’s policies are showing signs of improving Japan’s economy, just as Milei’s very different approach has improved Argentina’s.

The Japanese economy grew more than initially thought in the fourth quarter of 2025 on strong corporate investment, revised data showed on March 10.

The world’s fourth-largest economy grew 0.3 per cent in the three months to December, slightly up from the preliminary figure of 0.1 per cent, according to the Cabinet Office.

On an annualised basis, GDP grew 1.3 per cent, up from an initially reported increase of 0.2 per cent.

These figures may seem modest, but consider that Japan’s overall growth over the last 30 years averaged just 0.42 per cent.

The revision comes as Prime Minister Sanae Takaichi faces pressure to boost the economy […]

Last November, her government pushed through a 21.3-trillion-yen (S$172 billion) stimulus package including energy subsidies, cash handouts and investment incentives in key fields like semiconductors and artificial intelligence.

It also included funds for expanded spending on defence, as China increases military activities in the wider region.

Where Milei has to slash government spending without bleeding the economy to death, Takaichi has to try and kick-start a moribund economy that is already laden with debt.

Ms Takaichi’s remarks highlight a core financial risk – her flagship spending plan must rejuvenate the world’s fourth-largest economy without triggering debt jitters that could unleash another slide in the yen and government bonds.

In a policy speech to Parliament, Ms Takaichi repeated her resolve to pursue “responsible, proactive fiscal policy” aimed at increasing investment in areas like artificial intelligence, chips and shipbuilding to lift Japan’s potential growth.

“My administration will break with the longstanding trend of excessive fiscal austerity and chronic underinvestment for the future,” she said, adding that Japan should not hesitate to increase spending to support private investment.

Far from a socialist-lite Keynesian, Takaichi appears to be a ‘light-hand’ enthusiast.

Her calls for big spending and tax cuts sparked a sell-off in government bonds and the yen late in 2025, as investors fretted over how Japan – labouring under the developed world’s highest debt burden – would fund her big spending plans.

Ms Takaichi said that to make government initiatives more predictable for firms, her administration will overhaul the way state budgets are drafted, such as by promoting multi-year budgets and long-term investment funds […]

“At the same time, we will not adopt reckless fiscal policies that undermine market confidence,” she added, pledging to seek revenues through cuts to some existing subsidies.

The government will also keep the pace of debt increase within the rate of economic growth and steadily lower Japan’s debt-to-GDP ratio to ensure fiscal sustainability, she said, adding that it will set specific indicators to measure progress.

A particular, immediate, challenge is Takaichi’s proposed policy to suspend Japan’s eight per cent consumption tax on food for two years, to give Japanese consumers more money to spend. The only problem, as economic academic Dr Ikuko Samikawa warns, is that ‘temporary’ tax cuts have a way of becoming permanent. “Once the consumption tax on food is suspended by two years, it might be very hard to reapply the tax, as doing so would be a big tax hike for households. It might take very long to move the tax rate up again,” she says.

Either way, business-as-usual was clearly no more an option for Japan than it was for Argentina.