Japan's new PM is preparing large economic stimulus to cut inflation

Japan's new Prime Minister Sanae Takaichi is preparing an economic stimulus package that is likely to exceed last year’s $92 billion to help households tackle inflation, government sources familiar with the plan said on Wednesday.

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The package of more than 13.9 trillion yen ($92.19 billion) is Takaichi's first major economic initiative since the advocate of big fiscal spending took office on Tuesday, reflecting a commitment to what she calls “responsible proactive fiscal policy”.

It will be built around three main pillars: measures to counter inflation, investment in growth industries, and national security, the sources said, declining to be identified because the matter is still private.

Japan's benchmark Nikkei erased losses and turned higher on Wednesday after the Reuters report, while the yen pared morning gains and was little changed.

Investors are closely watching Takaichi's spending plans as Japan is one of the world’s most indebted economies.

As part of its core inflation relief measures, the Takaichi administration plans to swiftly abolish the provisional gasoline tax rate.

It also aims to expand local government grants, with a focus on supporting small and medium-sized companies that are unable to benefit from existing tax incentives for wage hikes.

The package will also include investments in growth sectors such as artificial intelligence and semiconductors as the government focuses on strategic economic development.

The exact scale of the package is still being finalised, the sources said. It could be announced as early as next month.