Japanese Prime Minister Sanae Takaichi addressed the opening of an extraordinary session of the Diet on October 5, 2026, emphasizing her government's commitment to maintaining fiscal support and responding 'flexibly' to economic and market conditions. Takaichi stated, 'We will continue to respond flexibly to the economic situation and market developments, ensuring stability and growth,' signaling no immediate shift from her expansionary spending agenda despite speculation about potential fiscal tightening due to rising inflation and global uncertainty [1].
Financial analysts interpreted Takaichi's remarks as a clear signal of continued government support, which has been a key factor in recent market confidence. The Nikkei average responded positively, regaining the 70,000 mark as optimism around artificial intelligence and sustained government spending returned. Traders noted that the government's willingness to support the economy could help buffer against external shocks and domestic inflationary pressures [1].
Takaichi's comments come amid rising prices on over 3,000 food and drink items and a notable increase in Tokyo's core inflation rate, developments that have strengthened arguments for further Bank of Japan rate hikes. The Bank of Japan recently raised rates to 1.25%, with Governor Ueda citing a shift in the policy phase. While this monetary tightening has introduced some volatility, Takaichi's assurance of ongoing fiscal support has helped steady market sentiment [1].
Most Japanese business leaders surveyed expressed support for a strict two-year limit on food tax cuts, indicating a preference for targeted fiscal measures. Technical analysts observed that the Nikkei index is now testing resistance near the 70,000 level, with support at 68,500. Continued government support is seen as potentially paving the way for further gains, provided inflation and monetary policy remain manageable [1].
CONCLUSION
Prime Minister Takaichi's reaffirmation of flexible, expansionary fiscal policy has reassured markets, helping the Nikkei average regain key levels despite inflationary pressures and recent Bank of Japan rate hikes. Investors remain attentive to future government spending signals as inflation and global uncertainties persist.