Japan Approves 21.3 Trillion Yen Stimulus Package to Combat Slowing Economy
Japan's cabinet approved a 21.3 trillion yen ($135.5 billion) stimulus package on Friday, November 21, 2025. According to CNBC, Prime Minister Sanae Takaichi announced the spending plan to address the country's slowing economy and support households facing inflation pressures. The package targets three main areas: price relief measures, economic growth initiatives, and defense capabilities.
The Cabinet Office confirmed the plan includes 17.7 trillion yen ($112 billion) in general account spending. Bloomberg reports this represents the largest extra spending round since the pandemic. Takaichi stated the government will fund the package through existing revenue. Any shortfall will be covered by issuing government bonds at levels below last year's 42.1 trillion yen supplementary budget.
Specific measures include one-time cash payments of 20,000 yen per child and rice vouchers worth 3,000 yen per person. The government will expand local government grants and provide subsidies for electricity and gas bills. Defense spending allocations total 1.7 trillion yen, with 1.1 trillion yen designated to reach the 2 percent GDP defense spending target by fiscal year 2025.
Economic Pressure Points Drive Policy Response
Japan's economy contracted at a 1.8 percent annual rate during the July-September quarter. The Cabinet Office projects the stimulus package will raise gross domestic product by 24 trillion yen, or an annualized growth rate of 1.4 percent. Inflation has remained above the Bank of Japan's 2 percent target for 43 consecutive months, the longest period since 1992.
The package addresses immediate household concerns through energy cost relief. However, economists question whether temporary subsidies will provide lasting inflation relief. Higher demand from other stimulus measures could push prices upward, offsetting any cost reductions. The government must secure parliamentary approval for a supplementary budget by year-end to implement these measures.
Takaichi succeeded former Prime Minister Shigeru Ishiba after election losses attributed to voter dissatisfaction with slow responses to rising prices. As Japan's first female prime minister, she has maintained strong public support. Her coalition lacks a majority in both houses of parliament, making budget approval more difficult.
Fiscal Sustainability Concerns Emerge
Bond markets reacted cautiously to the stimulus announcement. The yen traded around 157.13 per US dollar following cabinet approval. The benchmark 10-year Japanese government bond yield reached 1.817 percent on Thursday, the highest level since 2008, before declining to 1.785 percent on Friday. Nikkei Asia reported that yields have climbed to multi-decade highs as markets price in Takaichi's expansionary fiscal policy approach.
Japan maintains a government debt level exceeding 230 percent of GDP, the highest ratio among major economies. Jesper Koll, expert director at Monex Group, told CNBC the fiscal expansion could unsettle bond markets. He characterized the approach as short-term populism rather than structural reform incentives. Critics argue the package prioritizes immediate political needs over long-term fiscal health.
Global fund managers have expressed concern about Japan's ability to sustain additional borrowing. The government's debt servicing costs continue to rise as bond yields increase. Opposition lawmakers and economists debate whether the spending will achieve its stated economic goals. Some analysts suggest a more moderate scale would better balance growth needs with fiscal responsibility.
The package includes provisions to counter potential economic impacts from US tariff policies. Investment will flow into shipbuilding, artificial intelligence, and other strategic industries. The government allocated 700 billion yen for natural disaster reserves and crisis management needs.
Further Reading
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