Core Viewpoint - Japan's new Prime Minister, Sanna Takashi, is set to establish a multi-year fiscal target to allow for more flexible spending, signaling a shift away from strict fiscal consolidation commitments amid ongoing economic challenges such as aging population, rising prices, and high government debt [1][2]. Fiscal Policy Changes - Takashi has abandoned the idea of using annual basic fiscal surplus as a target for fiscal consolidation, opting instead for a multi-year approach, which some market participants interpret as paving the way for increased fiscal spending [2]. - The current government aims to achieve a basic fiscal surplus by the end of the fiscal year 2026, but previous administrations have repeatedly postponed this goal due to extensive spending plans [2][3]. - Takashi has not ruled out the possibility of reducing Japan's consumption tax, reinforcing expectations that her government will prioritize economic stimulus over improving deteriorating public finances [2]. Economic Stimulus Plans - The Japanese government is drafting an economic strategy focused on three pillars: addressing living costs and inflation, crisis management investment, and strengthening defense and diplomatic capabilities [4]. - The proposed economic measures may include tax incentives for 17 key industries, including artificial intelligence and semiconductors, to stimulate investment, although there are concerns about the broad scope of these sectors [4][5]. - The scale of the economic stimulus plan is under scrutiny, with expectations that it may exceed the approximately 13.9 trillion yen (about 641.72 billion RMB) budget for the fiscal year 2024 [4]. Structural Economic Challenges - Japan faces significant structural economic issues, including an aging population, which accounts for over 29% of the population aged 65 and older, leading to decreased consumption capacity and market demand [7]. - Rising prices have created financial strain on urban residents, impacting public trust in the government and presenting a political challenge for Takashi's administration [7]. - Japanese companies have struggled with innovation, particularly in technology sectors like the internet and artificial intelligence, falling behind competitors from the US and China [7].