Japan is entering a new political moment. The election of Sanae Takaichi as leader of the ruling Liberal Democratic Party and her position as the frontrunner to become Japan’s first female prime minister signal both continuity and change. A staunch supporter of Abenomics and an admirer of Margaret Thatcher, Takaichi has pledged to revive Japan’s economy through lower taxes, targeted industrial subsidies, and a renewed focus on national self-reliance.
Her ascent consolidates Japan’s conservative establishment after years of policy drift. Markets responded swiftly. The Nikkei 225 gained nearly five percent in the week following her leadership victory, while the yen weakened past 155 to the dollar, reflecting investor expectations of renewed fiscal stimulus. Yet behind this initial optimism lies a deeper question that extends far beyond Japan’s borders: can nationalist revival coexist with fiscal stability and global cooperation?
Takaichi inherits a complex economic legacy. For more than a decade, Japan has relied on the framework known as Abenomics, introduced by the late Shinzo Abe in 2012. It rested on three pillars: aggressive monetary easing, fiscal expansion, and structural reform. The first two injected liquidity and supported corporate profits, but the third remained incomplete. Productivity growth has averaged just 0.7 percent annually, real wages have stagnated, and public debt has climbed above 260 percent of GDP, the highest among advanced economies, according to the IMF. Despite repeated stimulus packages, Japan’s economy expanded only 1.2 percent last year. Takaichi’s challenge is to generate sustainable growth without deepening the debt trap.
Her plan prioritises investment in high-technology sectors such as artificial intelligence, robotics, and semiconductor manufacturing. Japan aims to triple domestic chip production by 2030 through a public investment of nearly $25 billion. These efforts mirror the global push to reduce dependence on Chinese supply chains, but they come at a steep fiscal cost. The Ministry of Finance projects that debt could exceed 270 percent of GDP by 2026 if current spending persists. Critics warn that further stimulus without reform risks fuelling inflation, already at three percent, the highest in decades. The Bank of Japan, after years of near-zero interest rates, now faces the delicate task of containing price pressures while maintaining growth momentum.
Takaichi’s political vision reflects Japan’s broader turn toward conservative nationalism. Her positions on gender roles, immigration, and defence underscore a belief in social discipline and economic order. While her leadership is historic, her admiration for Thatcher signals a governing philosophy rooted in conviction and hierarchy rather than liberal reform. Yet Japan’s demographic challenges constrain this vision. The population declined by nearly 800,000 last year, and one in ten citizens is now aged 80 or above. Labour shortages have deepened across manufacturing and services. Without immigration reform or large-scale automation, sustaining growth will prove increasingly difficult. This tension between ideological conservatism and economic necessity defines Japan’s uncertainty.
In foreign policy, Takaichi is expected to maintain Japan’s alignment with the USA and other G7 economies. Defence spending reached a record $56 billion in 2024, a 16 percent increase from the previous year. Her support for revising Article 9 of the constitution, which restricts Japan’s use of military force, signals a shift toward a more assertive regional role. This assertiveness now extends to economic policy. Industrial subsidies, defence production, and technology independence are being recast as instruments of national security. As global trade becomes increasingly shaped by strategic alliances, Japan’s model is shifting from export-led growth to selective self-reliance.
The symbolism of Takaichi’s leadership resonates beyond Japan. She represents a generation of right-leaning leaders who combine market pragmatism with nationalist rhetoric. Across the world, similar movements have gained ground, blending economic liberalisation with cultural revivalism. The appeal lies in their rejection of centrist orthodoxy and their promise to restore both prosperity and pride. Japan’s trajectory thus reflects a broader redefinition of economic governance, where the state reasserts its authority not for welfare but for sovereignty and security.
Japan’s shift toward a more interventionist state will reshape the regional economic order. Competition over semiconductors, rare earths, and renewable technologies will increasingly define Asia-Pacific power relations. For Pakistan, which maintains steady trade and development cooperation with Japan, this transition may open new opportunities in technology and energy sectors, provided domestic reforms align with evolving global priorities.
Japan remains one of Pakistan’s most consistent development partners, with bilateral trade exceeding $2.4 billion in 2024 and extensive technical cooperation through the Japan International Cooperation Agency. As Japan rebuilds its industrial base, it could create new avenues for collaboration in renewable energy, automotive supply chains, and digital infrastructure.
Takaichi’s rise embodies both ambition and uncertainty. She represents a nation seeking renewal and one confronting structural limits. Whether her economic vision succeeds will depend not only on fiscal design but also on Japan’s ability to confront its demographic and productivity constraints. Her ascent captures a global moment in which states are rewriting the rules of capitalism to serve nationalist ends. The outcome of Japan’s experiment will reveal whether prosperity can coexist with protectionism and whether the global economic order can adapt to this new nationalism. Japan stands, once again, as both participant and precursor, a society testing the boundaries between market openness and national strength.