Takaichi reshapes cabinet around 'responsible active fiscal policy,' nuclear revival and security overhaul

Japanese Prime Minister Takaichi Sanae retained eight of 18 cabinet ministers in her first reshuffle on Thursday, signaling a commitment to stability and continuity over sweeping change. Some analysts noted that she also kept intraparty rivals — including Foreign Minister Motegi Toshimitsu and Defense Minister Koizumi Shinjiro, both of whom had competed against her for party leadership — inside the cabinet, effectively limiting their ability to build independent influence within the Liberal Democratic Party.

In the appointment directive issued alongside the reshuffle, Takaichi outlined four policy priorities: responsible active fiscal management, protecting the lives and livelihoods of the people, strengthening diplomacy and defense capabilities, and improving policy communication.

In the directive, Takaichi described the cabinet's mission as realizing a "strong economy" through "responsible active fiscal policy" — one that raises growth potential while securing medium- to long-term fiscal sustainability, in the face of intensifying international competition over high-value industries and talent, and large-scale, long-term industrial policy spending by countries around the world. She also called for a "powerful Japanese diplomacy" that confronts global challenges in concert with other nations on the shared foundation of the rule of law and other basic values, underscoring both a "strong economy" and "strong diplomacy" as her administration's twin pillars.

The first concrete priority she identified was "responsible active fiscal policy." Takaichi has held firm to this expansionary stance even as financial markets remain unsettled by rising government bond yields and a weakening yen.

She set as her goal achieving robust economic growth across the country, including regional areas, by advancing the "Japan Growth Strategy" centered on 17 strategic sectors announced earlier, and by pursuing industrial cluster plans based on three types of "Regional Future Strategy." She also said addressing inflation stemming from the prolonged war involving Iran would be a top priority.

As an economic remedy in an inflationary environment, however, Takaichi pointed to the same tax-cut policies her administration has pursued from the start — most notably a reduction in the consumption tax rate on food and beverages. Critics say it is contradictory for a cabinet pursuing expansionary fiscal policy to simultaneously push for consumption tax cuts that would reduce revenue, yet Takaichi appears determined to press ahead with existing policy regardless.

On protecting the lives and livelihoods of the people, the directive emphasized responding to recent natural disasters such as earthquakes and heavy rains. It also made clear that Japan would deepen its alliance with the United States to maintain and strengthen its "strong diplomacy." Takaichi specifically listed the early return of Japanese nationals abducted by North Korea as one of her stated objectives — a cause she has championed since arranging a meeting between President Donald Trump and families of abduction victims at their Tokyo summit last October.

Takaichi also made clear she would push for a review of the "three strategic documents" to fundamentally strengthen Japan's defense capabilities. This is directly linked to revisiting the three non-nuclear principles — not producing, not possessing, and not permitting the introduction of nuclear weapons. Takaichi and the mainstream conservative wing of the LDP have long argued that the "no introduction" principle must be revised for US extended deterrence — the nuclear umbrella — to function effectively against North Korea's advancing nuclear and missile capabilities and China's maritime expansion.

The Nikkei Shimbun separately identified the key challenges facing the Takaichi cabinet as deepening the Japan-US alliance, revising the three security-related documents, and securing energy security.

The Nikkei noted that the LDP holds more than two-thirds of the seats in the lower house and that the cabinet's approval rating remains high, and urged Takaichi to use that solid political capital to tackle all three challenges.

The most pressing of the three, the Nikkei said, is deepening the alliance with the United States. The paper said fiscal and monetary policies could put Tokyo and Washington out of step. Rising US government bond yields mean Washington cannot welcome Japan's loose fiscal and monetary stance. Although the Bank of Japan raised its policy interest rate on Friday, the yen has continued to weaken — a trend that could erode US export competitiveness and widen the trade imbalance.

Even so, the Nikkei said that given the security situation in East Asia, including China, deepening ties with the United States remains paramount. "A rift between Japan and the United States would embolden China, Russia and North Korea, and destabilize East Asia," the paper said.

The second challenge is revising the three security-related documents — a task the Takaichi cabinet itself listed as part of its mandate in the reshuffle directive, and one expected to become the biggest policy issue this year. The Nikkei said that with the Russia-Ukraine war and the war involving Iran shaking the global order, reinforcing supply chains for semiconductors, critical minerals and energy is as central to national security as building up defense capabilities.

The final challenge — energy security — was raised with a pointed critique: Japan's over-reliance on the Middle East for crude oil procurement and transport had been a strategic mistake. The Nikkei called for diversifying both supply sources and shipping routes, and for establishing a system capable of stably supplying petroleum products even in a crisis. It also argued that renewable energy alone cannot simultaneously guarantee stable power supply and decarbonization, and that Japan should pursue the restart and reconstruction of nuclear power plants as well as the introduction of next-generation advanced reactors, including small modular reactors.