This Week's Weekly: Sanaenomics: Thatcher or Truss? An Iron Lady or a Short-Lived Floating President?

 

This Week's Weekly: Sanaenomics: Thatcher or Truss? An Iron Lady or a Short-Lived Floating President?

 

Monday, October 6, 2025

 

①   "The Birth of Sanaenomics and the Future of Japanese Politics—Interpreting the Nikkei Editorial"

 

Opening: Evaluation of the Editorial and Raising Issues

 

The Nikkei editorial dated Sunday, October 5, titled "Takaichi Urgently Calls for Political Revival to Overcome Difficulties: Questions to Ask in the LDP Presidential Election," is a relatively persuasive argument, but it must be said that it is not without its problems.

 

Indeed, the election of the first female LDP president (and perhaps the first female prime minister) in Japan's constitutional history carries symbolic significance. In a world where hereditary succession is rampant in LDP politics, the breaking down of this system in the recent presidential election held the day before is undoubtedly a step forward.

 

However, the two major scourges of privilege and vested interests remain deeply rooted. It is far from certain that a change in party leadership alone will restore public trust; structural reform is essential for true political revival.

 

Political stability is impossible without economic stability.

 

Political stability cannot be achieved without price and currency stability, as well as sustainable economic growth. Price stability and economic growth are often in a trade-off relationship, and the roots of current instability lie in the fourfold hardship facing the Japanese people: (1) a declining birthrate, (2) long-term stagnant consumption, (3) a depreciating currency, and (4) rising prices.

 

Amid 41 consecutive months of inflation exceeding 2% since April 2022, the government and the Bank of Japan have continued to exploit the general public doubly—or, more accurately, triply, if the multiplied burden of these two factors is included—with a 10% consumption tax and a cumulative inflation tax of over 8%.

 

It is no exaggeration to say that propaganda that ignores the reality that wage increases are not keeping up with rising prices is tantamount to deception.

 

The Inherent Contradiction of Sanaenomics

 

New Governor Takaichi's "responsible active fiscal policy" is nothing more than a rehash of Abenomics, and her disregard for the normalization of monetary policy is extremely dangerous.

 

At a press conference held on the evening of the day following the presidential election, she made radical statements that go against the accepted wisdom of modern macroeconomics, such as "the government is responsible for both fiscal and monetary policy." This statement is reminiscent of U.S. President Donald Trump's "arrogant ignorance."

 

The fundamental stance of Sanaenomics, which continues the late Prime Minister Abe's statement that "the Bank of Japan is a subsidiary of the government," is a dangerous sign that the basic principle of fiscal and monetary independence is being undermined.

 

A Warning from a Historical Perspective

 

The late Kazutoshi Hando (former editor-in-chief of Bungeishunju), widely regarded as an explorer of the history of the Meiji Restoration and the Showa era, pointed out the "three major flaws of Japanese leadership"—1) unfounded self-confidence, 2) arrogant ignorance, and 3) unfathomable irresponsibility—and it must be said that these flaws continue to cast a shadow over our country's politics.

 

If Sanaenomics reproduces these flaws, Japan could fall into chaos on a par with the 2022 Truss Shock in the UK (a major macroeconomic policy error triggered a triple collapse in financial markets, resulting in a sharp rise in interest rates, a fall in stock prices, and a depreciation of the currency, resulting in the short-lived administration of the Conservative Party, Truss, lasting only 44 days).

 

The Nikkei Editorial's Points and Limitations

 

While the editorial emphasizes the significance of Takaichi as a female president, it must be said that it does not delve deeply into her ties with the former Abe faction or the issue of "politics and money." Furthermore, while he advocates for "wise spending" in economic policy, he has not sounded sufficient warnings about the risks of expanding government spending.

 

On the diplomatic front, while expressing concern about visits to Yasukuni Shrine and conservative behavior, he has expressed hope for a summit meeting with President Trump. However, he has not mentioned any concrete strategies for rebuilding the Japan-U.S. alliance.

 

What is Needed to Steering in a Time of Poor Visibility

 

I have previously warned that, regardless of who is elected in the LDP presidential election, the new administration will be short-lived if it simply prolongs Abenomics.

 

However, with addressing rising prices becoming one of the biggest political challenges, the birth of Sanaenomics, which further stimulates aggregate demand through the twin engines of fiscal and monetary policy and could further fuel an inflationary spiral—a vicious cycle of wages and prices—was unexpected. Regrettably, Japan is now increasingly caught in the storm and visibility is becoming increasingly poor.

 

Now is the time for truly innovative measures to achieve both essential political revitalization and sustainable economic stability. Genuine reform and ideological renewal are required.

I strongly hope that new President Takaichi will manage politics based on the true national interest and public opinion, avoiding the mistakes of the Truss Shock.

 

However, while it is truly regrettable, the new LDP president has a baseless, blind, or even overconfident belief that the Japanese economy is still in "deflation," so it may be wise to recognize that dialogue with the general public and the Bank of Japan is no longer viable.

 

It is safe to say that the Japanese economy is now on the verge of complete fiscal dependency. Bank of Japan President Ueda, who is seen as politically illiterate, will be easily repressed, and there is no choice but to conclude that there is a very real risk that inflation and the weak yen will continue to worsen.

 

 

② Reconsidering the editorial: "Accelerating Price Rise: We Must Address the Pain of Households"

On the other hand, the October 4th Tokyo Shimbun editorial deserves praise for its empathy for households suffering from rising prices and its stance of urging political action. However, its specific policy discussions contain several issues that cannot be overlooked. Therefore, I would like to critically examine it from the following four points.

 

Abolishing the provisional gasoline tax rate poses environmental risks.

 

While abolishing the provisional tax rate would help reduce logistics costs, there are concerns that it will encourage fossil fuel consumption and accelerate global warming.

 

Despite a medium-term downward trend in crude oil prices in dollar terms, the main reason gasoline prices in Japan remain high is the weak yen. Therefore, the more fundamental solution is to stabilize the exchange rate rather than abolishing the tax rate.

The Bank of Japan must acknowledge "underlying inflation" and expedite the normalization of monetary policy.

 

The current situation, with inflation exceeding 2% for 41 consecutive months, is precisely what the Bank of Japan has denied: "underlying inflation." As the guardian of prices and the currency, the Bank of Japan should swiftly normalize monetary policy through gradual interest rate hikes in response to inflation exceeding the 2% target.

 

Fiscal handouts lead to a vicious cycle of inflation and fiscal collapse.

 

Repeated fiscal spending responses to rising prices could lead to a wage-price spiral,　and a loss of credibility due to a widening fiscal deficit. A sustainable system design is required, rather than short-term popularity-seeking measures.

 

A consumption tax rate cut would be more immediate and fair than a tax credit with benefits.　While a tax credit with benefits is one option, there is a long lag between system design and implementation, making it less effective.

 

A permanent reduction in the consumption tax rate to 5% would take less time to implement and would address the double whammy of a declining birthrate and stagnant consumption. Discussing an abstract theory as a price control measure, without knowing its impact relative to GDP, is itself fraught with illogical flaws.

 

While appreciating the editorial's intention, we call for more refinement of the policy argument.

 

The editorial's empathy for households' pain and its stance of holding politicians accountable are highly commendable. However, the details of the policy need to be reconsidered from the perspectives of the environment, finance, fiscal policy, and institutional design. Price control measures must not simply be symptomatic treatments, but must incorporate a structural perspective and be sustainable.

 

 

3. "Pursuing Strong Domestic Demand to Overcome Tariff Concerns" - A Critical Interpretation of the Nikkei Editorial

 

The title of the Nikkei editorial dated Thursday, October 2nd, was "Pursuing Strong Domestic Demand to Overcome Tariff Concerns," which was encouraging. Unfortunately, however, the editorial's content lacks a basic understanding of macroeconomics and is marked by a persistent insistence on corporate-led domestic demand expansion, which has drawn harsh criticism. Macroeconomic Perceptions and Policy Divergence

 

The current Japanese economy is showing clear macroeconomic signs, including:

• Inflation above 2% for 41 consecutive months

• Five consecutive quarters of positive growth compared to the previous quarter, leading to an inflation gap (aggregate demand > aggregate supply) of +0.3%, according to Cabinet Office estimates

• The Bank of Japan's Tankan survey also improved for two consecutive quarters, indicating solid business sentiment

 

Under these circumstances, what's really needed is a policy mix of monetary tightening and fiscal expansion: (1) normalization of monetary policy (interest rate hikes) and (2) a permanent reduction in the consumption tax rate to 5%.

 

Despite this, the Nikkei editorial fails to offer any such idea, instead pinning its hopes solely on business-led domestic demand expansion. This attitude clearly demonstrates a lack of understanding even the most rudimentary of macroeconomics.

 

Consumer-led domestic demand expansion is the key to a growth strategy.

 

A permanent reduction in the consumption tax rate to 5% is the most powerful growth strategy, creating a virtuous cycle of consumption and capital investment.

Sustained growth cannot be expected from preferential treatment for specific industries, which is not the invisible hand of God but the "dirty hands" of vested interests with party tickets.

 

The policies of the LDP administrations under Suga, Kishida, and Ishiba thus far, which can be seen as a rehash of Abenomics, have repeated the following three mistakes:

 

• Excessive monetary easing through negative real interest rates

 

• Unlimited fiscal spending

 

• An inefficient growth strategy based on nepotism

 

These policies, under the false banner of wage increases that can keep up with rising prices, expose the structural limitations of an LDP administration where hereditary succession, privilege, and vested interests are rampant. No matter who is elected president in last weekend's general election, it is inevitable that this administration will be short-lived.

 

Japan-US Tariff Policy and the Direction of Spending Shift

 

If, as the editorial states, we are overly concerned about the negative impact of the Trump administration's tariff policy, then shifting spending toward consumer-led, rather than corporate-led, expansion of domestic demand is the key to aligning with the US's policy of expanding net exports and building a win-win relationship that expands the economic pie for both Japan and the US.

 

Unless we learn from the lessons of the Plaza Accord and change our excessive reliance on large exporting companies, we cannot deny the risk of falling into a policy of impoverishing our neighbors through currency depreciation competition and once again self-destructing.

 

Now is the time to not miss this golden opportunity to achieve price stability and sustainable growth through a virtuous cycle of consumption and capital investment.

 

 

④ Thatcherism and Sanaenomics: Ideology and History Running Contrasting

 

Incidentally, Takaichi Sanae's positioning of former British Prime Minister Thatcher (1979-1990) as the "ideal politician" can be understood as a superficial admiration for "conservatism" and "strong leadership." However, when we look at the substance of their policy philosophies, the two are almost polar opposites.

 

Thatcherism, as a standard-bearer of neoliberalism alongside Reagan, thoroughly promoted "small government," "deregulation," "privatization," and "balanced budgets." She eliminated state intervention as much as possible and emphasized competition and efficiency based on market principles.

 

Sanaenomics inherited the Abe administration's state-capitalist framework and is rather a typical example of "big government," with its bold monetary easing, active fiscal policy, industrial intervention under the guise of a growth strategy, and the preservation of vested interests and nepotism. Its advocacy for the integration of fiscal and monetary affairs is the direction Thatcher most wary of.

 

Ignoring such ideological differences and insisting on "following Thatcher" is political rhetoric that lacks respect for history and ideals, and it is no exaggeration to call it a bad joke.

 

It is truly regrettable, but perhaps we should consider that the so-called "great call for the restoration of monarchy" that is Abenomics, implemented through Sanaenomics, has already lit the firestorm that will lead to a major collapse of the Japanese yen and the uncontrollable Reiwa inflation frenzy.

 

However, even if Japanese stocks rise further in the short term, their sustainability is still uncertain. This is because even if the Bank of Japan's policy interest rate remains stagnant for the time being, the twin engines of fiscal and monetary policy will be firing on all cylinders, and concerns about accelerating inflation and a sudden rise in long-term interest rates could hold back Japanese stocks.

 

In any case, Sanaenomics, which displays arrogant ignorance by ignoring even the basics of economics, especially (open) macroeconomics, could cause a momentary explosion in the Tokyo market at the start of the week and ultimately trigger a resurgence of the Truss Shock that occurred in the UK in 2022.

 

Will the yen really only weaken to around 150 yen to the dollar? Furthermore, could it trigger a sudden and uncontrollable depreciation of the yen and appreciation of the dollar, enraging the unorthodox US President Trump?

 

In any case, Japan has been drifting uncharted waters since the transition to a floating exchange rate system in the 1970s, wasting 40 years in vain. As the quadruple challenges of a declining birthrate, long-term stagnation in consumption, a depreciating currency, and rising prices worsen, we cannot help but see it as facing the greatest postwar and unprecedented crisis of Japan's collapse in the fall of 2025.

 

 

Tomo Nakamaru, Former World Bank Economist