Prime Minister Takaichi's policy speech prompted discussion of the long-term impact of fiscal expansion on prices and wages, as well as the possible implications for interest rates. On the assumption that it will take time for the effects of fiscal expansion to emerge, the discussion addressed the risk of inflation and the possibility of rising long-term interest rates.
Following Prime Minister Takaichi Sanae's (高市早苗) policy speech on 5 October, a policy of increasing domestic investment to raise potential growth was presented. However, achieving this through fiscal policy alone could take time, during which there may be side effects such as higher inflation and rising long-term interest rates.
The focus will be on interpreting the policy direction shown in Chart 1 and developments in real wages shown in Chart 2. It has been noted that it is uncertain whether fiscal expansion will actually raise potential growth and that implementation will take time.
Regarding movements in nominal and real wages in response to higher prices, the divergence between nominal and real wages was particularly pronounced in 2024–2025, and it has been argued that real wages cannot improve sustainably without gains in labour productivity. Based on the comparison in Chart 3, nominal and real trends need to be understood separately.
The consistency of these policies with the Bank of Japan's monetary policy was also addressed, with the point made that rising inflation risks could affect the level of long-term interest rates. The Bank of Japan aims to keep price increases in check while placing the economy on a stable path, but fiscal expansion could make it more difficult to avoid falling behind the curve.
Points to watch include the sharp rise in September CPI in Tokyo's 23 wards to 3.0%, the outlook for national CPI to exceed 2%, and 17-18 December as the timing of the next rate hike. The focus will be on how these developments affect the Bank of Japan's policy management and the market response.