Japan’s Takaichi says will steadily lower the debt-to-GDP ratio, restore fiscal sustainability

FXStreetFeb 20, 2026 5:19 AM

Japan Prime Minister Sanae Takaichi said on Friday that necessary spending will be funded as much as possible through the initial budget. She further stated that she will steadily lower the debt-to-GDP ratio and restore fiscal sustainability.

Key quotes

Necessary spending will be funded as much as possible through initial budget.

Will push bold investment through multi year budgets and long term funds.

Won’t pursue reckless fiscal policy that undermines market confidence.

Will steadily lower Debt to GDP ratio and restore fiscal sustainability.

Will maintain market trust and will clarify concrete fiscal indicators.

Fiscal policy that sufficiently considers discipline defines Takaichi cabinet’s ‘responsible, proactive fiscal policy’.

Will seek early passage by end of fiscal year of key bills including tax reform legislation for FY2026/27.

Market reaction

At the time of writing, the USD/JPY pair is trading 0.10% higher on the day at 155.25.

Japanese Yen FAQs

What key factors drive the Japanese Yen?

The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.

How do the decisions of the Bank of Japan impact the Japanese Yen?

One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.

How does the differential between Japanese and US bond yields impact the Japanese Yen?

Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.

How does broader risk sentiment impact the Japanese Yen?

The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.

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