Japan launches 370‑trillion‑yen 'Kottai' policy, shifting to active fiscal spending

On July 21, the cabinet of Prime Minister Sanae Takahashi approved the “Economic and Fiscal Management and Reform Basic Policy 2026,” commonly referred to as the Kottai policy, together with the Japan Growth Strategy. The policy replaces language about fiscal consolidation with a commitment to “responsible active fiscal policy” and outlines more than 370 trillion yen of public‑private investment over the next two decades in areas such as artificial intelligence, semiconductors and defense.

The plan also proposes reforms to consumption‑tax timing, minimum‑wage targets, health‑insurance cost‑sharing and expanded coverage for OTC drugs, while calling for the use of the MyNumber system to track income and assets. Critics note that Japan’s public debt is projected to exceed 1 145 trillion yen, raising sustainability concerns; the announcement triggered a bond‑sell‑off, higher yields and yen depreciation, dubbed the “bone shock.” Analysts discuss a shift to multi‑year budgeting and the abandonment of primary‑balance targets to accommodate the massive spending.