The cabinet approved the plan on Tuesday with a footnote stating that specific monetary policy tools are entrusted to the Bank of Japan (BOJ) and that its autonomy must be respected. That was a key addition from the original draft released on June 30. 

The plan didn’t include a decision on Takaichi’s election pledge to suspend the sales tax on food, a proposal that has raised concerns over how the government will fund it without worsening its fiscal situation. The government will determine its policy by early August, the document said. 

Along with the fiscal plan, the Takaichi administration also approved the latest version of the nation’s growth strategy. As a pillar of the strategy, Takaichi is calling for domestic investment of more than ¥370 trillion (US$2.3 trillion) in the period through March 2041. 

The strategy is estimated to lift nominal gross domestic product to nearly ¥1,100 trillion by then. It remains unclear how much of that investment will come from the government, another factor that is unsettling market participants concerned about Japan’s longer-term finances.

The fiscal plan won approval after delays in finalising the wording as policymakers tried to assuage market concerns and gain more clarity on the sales tax decision. The delays speak to the difficulty the government faces as it tries to present a freshened-up take on how to run its finances and attract investment without spooking markets.

The original draft helped spark a jump in government bond yields and added downward pressure on the yen as some market participants interpreted it as a sign that Takaichi’s pro-growth administration was trying to dissuade the BOJ from further rate hikes. 

The final document said “it is very important to conduct appropriate monetary policy in a manner that contributes to ‘stable price increases’”. The addition of the reference to stable inflation, a phrase that also provides leeway for rates to go up if needed, and the footnote on BOJ autonomy were likely added to help reassure investors. Both additions were present in revised drafts seen by Bloomberg last week.

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