Elections are only the first of Sanae Takaichi’s challenges | Number Theory

The import of the victory notwithstanding, Takaichi’s government and Japan face tough policy choices. The charts below summarise this

Election results released on Sunday vindicated Japanese prime minister Sanae Takaichi’s gamble on snap polls . With a 75.7% seat share for the Liberal Democratic Party (LDP) led alliance in the House of Representatives, her government will now have the biggest majority in Japan since the end of the second world war. The import of the victory notwithstanding, Takaichi’s government and Japan face tough policy choices. The charts below summarise this.

Reuters photo

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  Japan’s economic growth has been going from bad to worse

  Japan’s post-war economic boom, which helped turn it into a global economic superpower from the 1960s through the 1980s, has long since ebbed. In the high-growth decades, Japan’s dollar GDP expanded far faster than its G7 peers, but that momentum steadily weakened after the 1990s and has now flipped into reverse in the 2010-24 period. In fact, Japan’s economy has shrunk in nominal dollar terms over the past decade or so, a slide underlined when it fell behind Germany as the world’s third-largest economy, in part because a weaker yen drags down Japan’s output when measured in dollars. Structural factors have compounded the problem, including an ageing and shrinking population, tight labour supply, and stubbornly weak productivity growth, leaving households caught between higher living costs and limited income gains.
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  This makes the fiscal crisis even worse

  The elections were held amidst a sharp cost-of-living-crisis in the country. Data from Japan’s Ministry of Health, Labour and Welfare of Japan shows that real wages fell every month in 2025, which was the fourth consecutive year of fall in real wages. It is not surprising that economic relief measures, such as promises of abolishing the 8% sales tax on food for two years, figured prominently in Takaichi’s campaign. The problem, as far as the new government is concerned, is Japan’s fiscal state. Japan has the highest debt-GDP ratio among advanced economies which makes it extremely vulnerable to a crisis of confidence out of some sudden fiscal cost. Long-term yields on Japanese bonds have increased sharply in the recent past. To be sure, they are still lower than most advanced economies, but Japan being a laggard in terms of nominal GDP growth makes the debt burden greater.
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  An unfavourable demography makes boosting growth an even more difficult task

  Even if Takaichi wants to put Japan back on a faster growth track, the maths of demography is moving the other way. Japan’s working age population share has been sliding for decades and is projected to fall from about 59% in 2025 to 51% by 2050, while the elderly share rises from 30% to 37% over the same period. That shift shows up even more starkly in the old age dependency ratio, which has climbed from 17 elderly people per 100 working age residents in 1990 to about 51 in 2025, meaning a smaller pool of workers must support a growing retiree population. “A shrinking and ageing population makes it challenging to sustain the GDP per capita level and social insurance systems that provide health and long-term care and income to the elderly,” said 2024 report by the OECD. “Depopulation in many areas of Japan is making it difficult to efficiently supply adequate public services and is worsening regional disparities.” Japan’s own projections suggest that the number of senior citizens living alone will jump up 47% by 2050, which can intensify care needs even as the workforce shrinks.
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  And a growing tension with China would add to fiscal pressure via defence sending

  Tokyo’s economic constraints are tightening just as security risks are rising. Takaichi recently stoked a fresh spat with Beijing after saying Japan would likely intervene militarily if China used force against Taiwan, prompting angry Chinese protests and a further chill in already brittle ties. Against this backdrop, the Japanese cabinet approved a record defence budget exceeding JPY 9 trillion (around $58 billion) for the 2026 fiscal year, marking a 9.4% increase from 2025, and keeping the country on track for its stated goal of lifting military spending to 2% of GDP within the decade. The gap with China however remains stark. SIPRI estimates that China spent $314 billion on its military in 2024, roughly six times that of Japan’s $55.3 billion spent during the year. To be sure, Japan’s own rearmament push is still a clear break from its post-war restraint, with defence spending rising to about 1.4% of GDP in 2024.