Japanese Prime Minister Sanae Takaichi on Thursday retained key ministers in a cabinet reshuffle aimed at shoring up political support for her flagship spending plans as financial markets remain jittery.
In her first reshuffle since taking office last October, Takaichi kept Satsuki Katayama as finance minister, providing continuity in Japan’s exchange-rate policy.
Katayama played a key role in negotiations with US Treasury Secretary Scott Bessent over a rare joint US-Japan intervention in the yen market in late July, underscoring close cooperation between the two countries.
Analysts said Katayama’s reappointment, given her conservative stance on fiscal policy, was likely to reassure bond markets concerned that Takaichi’s plans to increase government spending could lead to higher debt issuance.
Takaichi also retained Minoru Kiuchi, an ally of her reflationist economic policies, as economy minister, signalling that she has no intention of scaling back her spending plans.
The yield on Japan’s benchmark 10-year government bond hit a three-decade high this week. Japan’s public debt is roughly twice the size of its economy, the highest among advanced economies.
Other key ministers, including some of Takaichi’s rivals in last year’s race to lead the ruling party, also retained their posts. Foreign Minister Toshimitsu Motegi and Defence Minister Shinjiro Koizumi will remain in their positions.
Seeking to strengthen cooperation with her ruling Liberal Democratic Party’s coalition partner, Takaichi appointed Hiroshi Nakatsuka of the Japan Innovation Party as minister in charge of deregulation.
Chief Cabinet Secretary Minoru Kihara, who announced the new cabinet lineup, also retained his post. Takaichi was scheduled to hold a news conference at 6:30 p.m. local time on Thursday.
Parliamentary debate on Takaichi’s economic policies is set to begin soon, putting the prime minister under pressure to balance support for households facing rising living costs with concerns over Japan’s finances.
Backing away from her pledges to cut taxes and increase spending could hurt her strong public support, while her plan for a two-year tax cut on food has contributed to a sell-off in government bonds and drawn criticism from Bessent.
Takaichi’s pledge to cap new government bond issuance at around 40 trillion yen ($256 billion) for the fiscal 2027 budget is also facing scrutiny after budget requests rose to levels last seen during the pandemic.
Japan is also considering higher defence spending as part of a review of its national security strategy this year.
The cost of servicing Japan’s debt is rising as the Bank of Japan raises interest rates and reduces its bond purchases, seeking to move the economy away from decades of large-scale monetary stimulus.
The central bank is widely expected to raise its key policy rate by 25 basis points to 1.25% on Friday.