---
title: "Goldman Sachs predicts that it is unlikely for the government to immediately implement large-scale fiscal expansion, but defense spending may gradually increase to exceed 2% of GDP"
description: "Goldman Sachs analysis believes that Japan's newly elected Liberal Democratic Party president Sanae Takaichi is unlikely to immediately implement large-scale fiscal expansion, despite her advocacy for"
type: "news"
locale: "en"
url: "https://longbridge.com/en/news/260004747.md"
published_at: "2025-10-06T03:35:23.000Z"
---

# Goldman Sachs predicts that it is unlikely for the government to immediately implement large-scale fiscal expansion, but defense spending may gradually increase to exceed 2% of GDP

> Goldman Sachs analysis believes that Japan's newly elected Liberal Democratic Party president Sanae Takaichi is unlikely to immediately implement large-scale fiscal expansion, despite her advocacy for active fiscal policy. Defense spending is expected to gradually increase to over 2% of GDP. In the short term, the impact on the Bank of Japan's monetary policy is limited, with an interest rate hike expected in January 2026. Takaichi may seek to cooperate with opposition parties to expand the coalition to ensure government stability. She has extensive experience in crisis management and defense policy, having served as the Minister for Economic Security

In the election of the president of Japan's Liberal Democratic Party (LDP) last Saturday (4th), Sanae Takaichi was elected as the new party leader. Although Takaichi has consistently advocated for strategic and proactive fiscal policies, she has indicated that she will respect the existing policy guidelines of the LDP and Komeito coalition government, such as the exclusion of the proposal for a consumption tax cut in this presidential election manifesto. Therefore, the bank believes that she is unlikely to immediately implement large-scale fiscal expansion policies. However, the bank does not rule out the possibility that she may gradually move towards fiscal expansion in the future by deepening cooperation with opposition parties that advocate proactive fiscal policies. Japan's defense spending may also gradually increase to over 2% of GDP.

The bank believes that Takaichi's victory in the LDP presidential election will not have a significant impact on the Bank of Japan's monetary policy in the short term, as it is expected that the Bank of Japan will temporarily maintain interest rates unchanged based on risk management considerations. The bank's basic expectation remains that the next interest rate hike will occur in January 2026, but if the consistency between the Bank of Japan and government economic policies is called into question, the timing of the rate hike may be delayed. Goldman Sachs will closely monitor Takaichi's future statements and pay attention to this possibility.

Goldman Sachs pointed out that with the new LDP president in place, the Japanese Diet is expected to hold a special session around October 15 to elect a new prime minister and form a new cabinet. Since Takaichi has indicated that the LDP and Komeito alliance is a priority, and will also consider incorporating parties with similar policy ideas into the alliance, the bank assumes that the existing minority government formed by the LDP and Komeito will continue to be maintained and will seek cooperation with opposition parties on a case-by-case basis. However, the new government may seek to expand the alliance structure or establish a clearer cooperation model outside the cabinet to ensure government stability. Under Takaichi's leadership, the possibility of establishing a partnership or coalition government with the Constitutional Democratic Party, which shares similar policy goals (such as proactive fiscal policy), has emerged.

Goldman Sachs noted that Takaichi was first elected as a member of the Diet in 1993. She has served as Minister for Economic Security and has long held the position of Minister of Internal Affairs and Communications in the Abe Cabinet, possessing extensive expertise in crisis management and defense-related policies. As a supporter of "Abenomics," she advocates for proactive fiscal spending. Regarding inflation and fiscal policy: Takaichi stated in May this year that to cope with rising prices, the consumption tax on food should be reduced to 0%, but she also acknowledged that changing the tax system takes time. Therefore, she proposed subsidies that local governments can decide how to use.

In terms of industry, defense, energy, and other policies: Takaichi has committed to promoting investment in areas such as artificial intelligence, semiconductors, quantum computing, space, and advanced medicine. Strengthening cybersecurity (one of her areas of expertise) is also included in her policy agenda. In energy, she advocates that next-generation nuclear reactors and new nuclear fusion technologies are crucial for providing cheap and stable electricity, especially for high-voltage and ultra-high-voltage power supply. She prioritizes the development of domestic resources and opposes the use of foreign-made solar panels.

Regarding the government's current five-year defense buildup plan (which aims to gradually increase the defense budget from 1% of GDP to 2% over the five years from fiscal year 2022 to fiscal year 2027), she stated that numerical targets for defense spending should not be preset, but acknowledged that there is much work to be done

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> **Disclaimer**: This article is for reference only and does not constitute any investment advice.