New election gives Saika Takaichi a mandate for reforms.
In the wake of Japan’s early general election on February 8, 2026, much of the commentary has focused on two major aspects: the landslide victory of Saika Takaichi’s Jiyū-Minshutō (Liberal Democrat Party, LDP) of 316 seats; and LDP’s hardline shift against immigration and foreign workers. Underdiscussed, however, are the likely impacts the election outcome has on Japan’s economic fortunes.
The election to the House of Representatives, the lower house of the National Diet, was held early after Takaichi’s winning of the leadership in October 2025. Takaichi, Japan’s first female Prime Minister, was governing with a minority as part of a coalition with the Nippon Ishin no Kai (Japan Innovation Party, JIP), but the early election led to the largest majority Japan’s government has seen since 1945, with a supermajority exceeding even the 2009 majority of 308 won by the left-wing Minshutō (Democratic Party of Japan, DPJ). As The Economist pointed out, the victory has been read as giving Takaichi quite a significant personal mandate.
But this mandate comes at a time of unusual economic sensitivity. The scale of the victory matters not simply because it consolidated the rule of the conservative right in Japan, but because it expands the government’s fiscal and legislative room for maneuver as Japan navigates inflation, currency weakness, and the first meaningful shift away from ultra-loose monetary policy in a generation.
The immediate economic debate now centers on the future fiscal direction of the nation. Japan’s gross public debt remains the highest in the developed world relative to GDP (currently 228%). For decades, that burden has been manageable due almost entirely to near-zero interest rates, and strong domestic absorption of government bonds; but as policies shift, so too does arithmetic. The International Monetary Fund (IMF) has consistently warned that Japan must balance near-term growth support with credible medium-term consolidation; likewise, the Japanese Ministry of Finance has stressed that rising interest rates will mechanically increase debt servicing costs, narrowing fiscal flexibility despite the legislative headroom.
In this context, tax cuts are politically attractive—but economically consequential. On one hand, they promise relief for households facing elevated import costs and energy prices that have remained high largely due to an overexposure to international prices, and the weakness of the yen on the dollar. On the other, tax cuts raise questions about sustainability unless accompanied by structural reforms that lift productivity and expand the tax base. The parliamentary majority removes legislative gridlock, and ensures political will; it does not remove bond market scrutiny or override economic reality.
The fiscal question intersects directly with Japan’s evolving monetary regime. The Bank of Japan (BoJ) has begun adjusting the framework that defined Japanese macroeconomics for much of the past two decades; but the transition is delicate. As Mia Glass has pointed out in Bloomberg, bond markets are sensitive to even incremental policy adjustments.
So, in the combined context of a shifting economic landscape and a landslide victory forming Japan’s largest ever supermajority, it is important to consider the LDP’s economic policies and their likely impact on the economic future of the country.
Takaichi’s government’s economic commitments rest on three pillars: targeted tax relief; strategic industrial policy; and calibrated fiscal management within the aforementioned extremely high public debt.
Notwithstanding the above difficulties around tax cuts, this has sat at the center of the LDP’s economic narrative: the tax cuts that the party favors are intended to ease rising cost-of-living pressures and stimulate private investment. Given the limited ability of any national government to ride the waves of international economic fortunes, tax cuts are the most attractive—and reasonable—route to reducing burdens on the population.
The main beneficiaries of the tax cuts are intended to be those most exposed to international tensions: first and foremost are working and middle-income households who were most deeply impacted by inflation. Because wage growth has lagged behind prices as a consequence, disposable income has been squeezed, leading to tax reductions as a compensatory method of restoring purchasing power, stabilizing household consumption and easing political dissatisfaction.
Second are the small and medium-sized enterprises (SMEs) with which the LDP, like any conservative party, maintains strong ties. Here, however, is more than pandering to a base; it is a long-term strategic attempt to facilitate domestic manufacturing and export-oriented firms by lessening their burdens, and encouraging capital expenditures and investments in a likely period of tightening borrowing conditions. All of this is a gamble: but the hope is that, by boosting domestic manufacturing through tax cuts over subsidies, long-term regional development is assured and state interventionism is decreased, leading to a more sustainable economic footing.
The third intended beneficiaries are those firms operating in industries and sectors that align closely with the new government’s industrial policy goals, such as semiconductors, green technology (especially reversing the country’s previous move away from nuclear), and, perhaps most crucially, the defense industry. Given that it’s baked into the Japanese constitution in Article 9 that defense spending must be pacifist in focus—a long legacy of the Second World War and an attempt to neutralize the once-Imperial nation—this is only possible with a supermajority. Which, of course, Takaichi’s LDP now has.
But the shift in defense spending policies are economically significant as much as political: first, the intention of targeted growth stimulus via the defense industry ties in with the other strategic industries, including semiconductors, tying defense closer to domestic prosperity as much as international security—much like China; and second, there is a hope that if this works, and the increased defense spending strengthens Japan’s geopolitical position and industrial base, bond markets might stabilize through improved growth credibility. But if this growth fails to materialize, this could completely backfire, increasing imports without the domestic economy bolstered to offset them.
Overall, Takaichi and the LDP are taking some significant steps in restructuring the Japanese economy away from international dependency, and back towards self-sufficiency—but not in key strategic industries. This is a risk, and at a time of international turmoil, could well be the wrong one. But if it works, it could pay major dividends.
