Japanese firms remain wary of fiscal discipline under Takaichi, even as concerns over China tensions ease.
Summary:
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Two-thirds of Japanese firms express concern about PM Takaichi’s fiscal discipline
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Markets rattled by proposed temporary food tax suspension
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IMF urges fiscal restraint to maintain bond market stability
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Fewer firms now fear business fallout from China tensions
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Weaker yen and higher borrowing costs seen as main risks
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Earlier re weak yen: JP Morgan raise their forecasts for AUD, NZD and for USD/JPY (EUR/USD unchanged)
Two-thirds of Japanese companies are concerned about the government’s fiscal discipline under Prime Minister Sanae Takaichi, according to a Reuters corporate survey, underscoring lingering unease in the business community despite recent efforts to calm bond markets.
The concern follows Takaichi’s proposal to temporarily suspend the 8% sales tax on food for two years and increase investment spending to support growth. The announcement, made ahead of last month’s snap general election, unsettled investors and drove long-dated Japanese government bond yields to record highs as markets questioned how the measures would be financed. Although Takaichi subsequently pledged to pursue “responsible” stimulus and avoid issuing new debt to fund the tax cut, corporate scepticism appears to persist.
Survey results show 11% of firms are “greatly concerned” about fiscal discipline, while 55% are “somewhat concerned.” Only 30% report limited worry. Among those uneasy about fiscal policy, 64% cite the risk of a weaker yen raising raw material import costs, while 55% are concerned about higher borrowing costs. Businesses indicated they may reassess capital expenditure plans, adjust funding strategies or curb wage growth if fiscal-related risks materialise.
Japan already carries the highest public debt burden among developed economies, a structural vulnerability that heightens sensitivity to any perception of fiscal loosening. The International Monetary Fund has also cautioned that while limiting tax cuts to essential goods and ensuring they are temporary could help contain costs, broader fiscal restraint remains important to anchor bond market stability.
Separately, the survey suggests concerns about diplomatic tensions with China have moderated. Around 18% of firms now expect strained relations to affect business, down from 35% in January. The share anticipating little impact rose to 73%. While some companies continue to view China as a critical market, others report efforts to diversify supply chains and reduce exposure amid recurring tensions.
Overall, the results highlight a corporate sector navigating fiscal uncertainty at home while cautiously recalibrating geopolitical risk abroad.
