Core Viewpoint - The "Kishida Economic Policy" faces significant challenges, including internal fiscal and monetary policy dilemmas, rising prices impacting citizens, and uncertainties in US-Japan tariff negotiations [1] Price Increase Impact - Japan has experienced a trend of rising prices after three decades of deflation, with the Tokyo core consumer price index rising by 2.8% year-on-year as of October 31, exceeding previous expectations [2] - Despite a 5.4% wage increase agreement in 2025, real wage income continues to decline due to inflation, necessitating at least a 3% wage growth over the next two years to meet sustainable inflation targets [2][3] - The number of bankrupt companies with debts exceeding 10 million yen reached 4,990 in the first half of 2025, marking a 1% increase from the previous year, highlighting the financial strain on small and medium-sized enterprises [3] Demographic Challenges - Japan's total population is projected to decline by approximately 554,500 in 2024, continuing a 16-year downward trend, with the population dropping to a historical low of 120.65 million when excluding foreign residents [4] - The aging population and declining birth rates pose significant challenges, with social security expenditures projected to account for 33.1% of total government spending in the 2025 fiscal budget [4] - Labor shortages are identified as a structural issue, necessitating investment in human resources and reforms in employment practices to attract talent [5]

Economic Challenges - The Japanese economy is facing significant constraints due to demographic issues, with a focus on the long-term impact of population decline and aging [1][5] - The government has initiated the "Japan Growth Strategy Council" to implement active fiscal policies aimed at increasing income, improving consumer confidence, and enhancing tax revenue [1] - Despite achieving a 5.4% wage increase agreement in 2025, real wage income is still declining due to rising prices, indicating a need for wages to grow at least 3% to meet sustainable inflation targets [3][5] Inflation Impact - The core consumer price index in Tokyo rose by 2.8% year-on-year as of October 31, surpassing previous expectations, with nationwide price increases remaining above the Bank of Japan's 2% target for three and a half years [3] - The rising cost of living, particularly for essential goods, is significantly impacting low-income groups, leading to increased financial strain on the population [3][4] Corporate and Labor Market Dynamics - The number of bankrupt companies in Japan with debts exceeding 10 million yen reached 4,990 in the first half of 2025, marking a 1% increase from the previous year, highlighting the financial strain on small and medium-sized enterprises [4] - Large corporations are raising wages, but the cost is often passed onto suppliers, which poses challenges for small businesses that employ 70% of the workforce [3][4] Demographic Trends - Japan's total population is projected to be slightly above 124.33 million in 2024, reflecting a decrease of approximately 554,500 from 2023, continuing a 16-year trend of population decline [5] - The aging population is leading to increased social security expenditures, which accounted for 33.1% of the total fiscal budget in the 2025 initial budget proposal [5] Workforce Investment - Addressing labor shortages is seen as a structural issue, with calls for reforms in human resource systems to attract talent through flexible work arrangements and salary structures [6] - There is an emphasis on increasing investments in human capital, particularly focusing on women's potential and enhancing productivity in small and medium enterprises [6]

Core Viewpoint - The financial market is betting on significant fiscal stimulus measures from Japan's new ruling party leader, Sanae Takaichi, which is expected to drive the Nikkei 225 index to historic highs, potentially reaching 50,000 points [1][2][3]. Group 1: Market Reactions - The "Takaichi Trade" has led to a rapid increase in the Japanese stock market, depreciation of the yen, and a resurgence of yen carry trades, reflecting expectations of stronger fiscal stimulus and mild monetary policy [2][3]. - Following Takaichi's election, the Nikkei 225 index surged by 4.8%, with the broader Topix index rising by 3.1% [4]. Group 2: Institutional Predictions - Nomura Securities raised its year-end forecast for the Nikkei 225 from 44,500 to 49,000 points, while Daiwa Securities also increased its forecast to 49,000 points, indicating a high probability of reaching 50,000 points within the year [5][7]. - Other institutions, including Julius Baer and SMBC Nikko Securities, have similarly adjusted their forecasts upward, with Julius Baer predicting a rise to 50,000 points [4][6][7]. Group 3: Economic Implications - Takaichi is expected to continue the "Abenomics" framework, which could create an environment of economic growth outpacing interest rates, benefiting the stock market and attracting foreign investment [6]. - The anticipated policies under Takaichi, including tax cuts and cash subsidies, are likely to favor sectors such as technology, defense, and advanced manufacturing, positioning them as major beneficiaries in the stock market [3][4].