Japan’s first female prime minister plans to cut taxes, increase subsidies, and honor Donald Trump’s investment deal

Sanae Takaichi has become the first woman to lead Japan after winning the ruling Liberal Democratic Party leadership race, setting her on track to become prime minister.

Speaking at a press conference on Saturday, she said the government and the central bank “must work closely” to achieve “demand-driven inflation backed by rising wages and corporate profits.”

Takaichi warned that while Japan, the world’s fourth-largest economy, is already experiencing inflation, it is still premature to declare the country free of stagnation because recent price rises were “driven by high raw material costs.” She added, “Japan may no longer be in deflation. But its economy is still at a critical phase,” pointing to how companies are likely to feel the hit from higher U.S. tariffs.

Takaichi said, “We can’t leave cost-push inflation unattended. It’s too early to be complacent” about the risk of a return to deflation. She explained that the best outcome would be “to achieve demand-driven inflation, where wages would rise and drive up demand, which in turn causes moderate price rises that boost corporate profits.”

She also signaled a review of the joint statement agreed upon with the Bank of Japan (BOJ) in 2013 that focused on measures to beat deflation, adding that, “The government and BOJ must move in lockstep and cooperate with each other in guiding economic policy.”

Push for cooperation with the Bank of Japan

Takaichi is an advocate of the late premier Shinzo Abe’s “Abenomics” strategy to boost the economy with aggressive spending and easy monetary policy. She has previously criticized the Bank of Japan’s interest rate increases, saying such moves undermine wage and demand growth.

Her plans could unsettle investors in Japanese bonds, which are already pressured by one of the world’s largest debt loads, and they could also put downward pressure on the yen. Naoya Hasegawa, chief bond strategist at Okasan Securities in Tokyo, said her election weakened the chances of the BOJ raising rates this month, which markets had priced at about a 60% chance before the vote.

At her press conference after the victory, Takaichi outlined plans to cut taxes and increase subsidies while emphasizing “the importance of fiscal prudence.” She said the BOJ’s monetary policy must account for the fragility of the economy and the pace of wage growth.

Takaichi also confirmed she would honor an investment deal with U.S. President Donald Trump that lowered tariffs in return for Japanese taxpayer-backed investment, despite having previously floated the idea of reworking it. The U.S. ambassador to Japan, George Glass, congratulated her on X, saying he looked forward to strengthening the “Japan-U.S. partnership on every front.”

Moves on foreign policy and national security

Her stance on national security and regional relations is already drawing attention. Takaichi regularly visits the Yasukuni shrine to Japan’s war dead, a move that some Asian countries see as a symbol of past militarism.

South Korea responded with a statement from President Lee Jae Myung’s office saying it would “cooperate to maintain the positive momentum in South Korea-Japan relations.”

Takaichi has also said she favors revising Japan’s pacifist postwar constitution and suggested earlier this year that Japan could form a “quasi-security alliance” with Taiwan, the democratically governed island claimed by China.

Taiwan President Lai Ching-te welcomed her election, calling her a “steadfast friend of Taiwan” and saying, “It is hoped that under the leadership of the new (LDP) President Takaichi, Taiwan and Japan can deepen their partnership in areas such as economic trade, security, and technological cooperation.”

Takaichi said if elected prime minister, she would travel overseas more regularly than her predecessor to send the message that “Japan is Back!” In her victory speech, she declared, “I have thrown away my own work-life balance and I will work, work, work.”

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