Takaichi to Keep Key Ministers in Cabinet Reshuffle, Signaling Policy Continuity

Japanese Prime Minister Sanae Takaichi is expected to keep several key ministers in a cabinet reshuffle on Thursday, her first since taking office last October, in a move that signals policy continuity as she seeks to advance her spending plans amid financial market jitters.

Finance Minister Satsuki Katayama is likely to stay on, ensuring continuity in exchange-rate policy. Katayama, a former finance ministry official known for a conservative stance on fiscal matters, played a central role in negotiations with US Treasury Secretary Scott Bessent on a rare joint US-Japan yen intervention in late July. Her reappointment is expected to be welcomed by bond markets wary of Takaichi's expansionary fiscal approach, which could lead to increased debt issuance.

Takaichi also appears set to retain her reflationist ally Minoru Kiuchi as economic revitalisation minister, according to the Yomiuri newspaper, indicating no intention to rein in large spending plans. The choices highlight the balancing act she faces: households are struggling with a rising cost of living, making it risky to back down on pledges to cut taxes and boost spending, while markets and US officials have called for fiscal discipline after her plans and a proposed two-year tax cut on food items triggered a bond sell-off and criticism from Bessent.

Domestic media report that other key ministers are likely to stay, including Foreign Minister Toshimitsu Motegi and Defence Minister Shinjiro Koizumi, both of whom competed against Takaichi in last year's ruling party leadership race. On Wednesday, she largely maintained the ruling Liberal Democratic Party's executive line-up, further emphasizing political continuity. She is also expected to give a cabinet post to the LDP's coalition partner, the Japan Innovation Party, to strengthen policy cooperation.

The new cabinet will face parliamentary debate on key fiscal issues, including legislation for the two-year sales tax cut on food items, with opposition parties expected to press the government on funding. Takaichi's pledge to cap new government bond issuance at around 40 trillion yen ($256.1 billion) for the fiscal 2027 budget is already under scrutiny, with expenditure seen rising from budget requests that have swelled to pandemic-era levels. Japan also faces the prospect of higher defence spending in a strategy review this year. The cost of funding Japan's debt is increasing as the central bank raises interest rates and slows bond purchases to wean the economy off decades of massive stimulus.