Final Briefing of the Year
Good morning, and welcome to the recap of Japanese Politics One-on-One, Episode 255 — our final briefing of 2025, and the 52nd broadcast of the year.
Rather than racing through headlines, this week’s discussion stepped back to examine where Japan stands as the calendar turns: politically, economically, strategically, and culturally. With the Extraordinary Diet concluded and the Regular Diet set to open later in mid-January, the country enters a brief surface calm … beneath which structural change continues a’pace.
Below is what mattered, and why it will shape 2026.
This Week’s Headline Takeaways
- Prime Minister Sanae Takaichi closes the year with exceptionally strong approval ratings, approaching 70%;
- Coalition dynamics have shifted decisively, with DPFP leader Yuichiro Tamaki emerging as a pivotal power broker;
- A massive supplementary budget and a forward-leaning 2026 draft budget signal a willingness to tolerate higher debt to build future capacity;
- Despite a Bank of Japan rate hike, the yen remains weak — reflecting fiscal and structural forces rather than speculation;
- Japan’s defense posture continues to evolve toward deterrence, technology, and alliance integration rather than manpower;
- Japan’s economic engine has fundamentally changed: services, overseas investment income, and tourism now dominate over manufacturing;
- January will be quieter politically, but only until the budget clock starts ticking more closely toward April 1.
A Prime Minister Ending the Year Strong
Prime Minister Takaichi ends 2025 in a far stronger position than many anticipated just two months ago. Polling shows approval around 70 percent, with disapproval near 20 percent, exceptional by Japanese standards, and remarkable by global ones.
Voters appear to reward clarity and decisiveness rather than personality. PM Takaichi’s handling of China-related tensions, her willingness to move forward without apology, and her ability to pass an enormous supplementary budget have all resonated even among voters uneasy about economic spillover effects.
Importantly, her strength has given her room to maneuver politically. You can see this and feel it, too.
Coalition Arithmetic and the Rise of Tamaki
The year closed with a quiet but important political realignment. And wow how far we have come!
Ishin no Kai ends the year weakened somewhat, having failed to secure its two marquee demands: a 10 percent reduction in Lower House seats and concrete progress toward Osaka as THE second capital. The failures undercut Ishin’s leverage and created space for an alternative partner.
The Democratic Party for the People filled that space 10 days ago.
By embracing DPFP leader Yuichiro Tamaki’s proposal to raise the tax-free income threshold, the Prime Minister delivered a popular policy win that resonated with lower- and middle-income voters nationwide. The move was not accidental as it reduced reliance on Ishin and expanded the Prime Minister’s coalition options.
Komeito, having formally exited the coalition, nevertheless voted pragmatically with the government on key measures. This signaled concern about being blamed for instability as election math begins to shift (and probably feeling a tinge of ‘seller’s remorse’).
The result: fewer constraints on the Prime Minister, and more optionality heading into 2026.
Budgets, Debt, and Market Signals
The supplementary budget passed at the end of the Extraordinary Diet was enormous — roughly ¥18 trillion — and deliberately so. It is considered strategic spending focused on AI, advanced computing, defense and dual-use technologies, energy resilience, and industrial security.
The newly submitted (just on Friday, two days ago) 2026 Draft Budget reinforces this direction: higher defense spending, continued industrial policy, and a clear willingness to tolerate higher debt if it builds future growth capacity.
Markets have noticed.
Despite the Bank of Japan’s recent rate hike, the yen weakened further, closing around ¥157.5 to the dollar. This is not a credibility problem for the BOJ; it reflects investor concern about medium-term fiscal discipline and ongoing capital outflows, particularly as Japan remains a net energy importer.
Officials have deliberately downplayed intervention chatter, signaling recognition that current yen weakness is structural rather than speculative.
For households, this means continued pressure from imported-goods and digital subscriptions inflation. For exporters and tourism, it remains a windfall — a tension likely to define much of 2026.
Defense, Deterrence, and Strategic Reality
Japan’s security environment remains volatile.
Joint China-Russia bomber flights, North Korean rhetoric, and rising Taiwan tensions are not isolated provocations; they are probes testing response times and signaling displeasure with Japan’s trajectory.
Japan’s response has been calm but firm: accelerating defense spending, expanding defense export flexibility, and prioritizing deterrence over provocation. The Self-Defense Forces are have reshaped around technology, missile defense, cyber operations, space surveillance, and alliance interoperability, not around mass mobilization.
A remark some saw as a brief “trial balloon” suggesting Japan consider nuclear weapons was quickly walked back, but its mere appearance underscored how previously taboo topics are now being discussed more openly. Local nuclear energy generation, by contrast, is moving forward decisively as Japan seeks energy security and reduced import dependence.
The shift is unmistakable and closely watched in Beijing, Pyongyang, and Washington.
What Drives Japan’s Economy Now
Japan no longer earns its living primarily by making things.
Today, four pillars dominate:
- Services — finance, logistics, real estate, healthcare — now the largest driver of GDP;
- High-end manufacturing — precision components, materials, and machinery;
- Overseas investment income — dividends, royalties, and profits earned abroad, now larger than Japan’s trade surplus;
- Tourism — effectively an export industry with high returns and relatively low policy cost.
Japan now earns more from owning assets, technology, and supply chains overseas than from exporting finished goods. This reality allows tolerance of a weaker yen but also demands productivity gains in services, where Japan lags badly by G20 standards.
The government’s focus on AI, semiconductors, defense technology, and energy security reflects this shift: fewer workers, but higher value per worker. Lots of room for improvement here.
Looking Ahead: January and Beyond
With the Regular Diet set to open late in January, the risk of a snap election has disappeared. The Prime Minister is strong, coalition opposition is fragmented, and there is little appetite to gamble before the budget deadline of April 1.
Surface calm, however, should not be mistaken for stasis. Positioning continues quietly across parties and ministries. Once the calendar turns, the budget clock will drive negotiations, concessions, and potential friction. Japan ends the year paused but not idle.
Q&A
- Who are the primary buyers of Japanese drones and other military hardware?
- Some predict that the yen will weaken to 164JPY / USD in 2026. What is your outlook?
- Recently, some Japanese politicians have visited Taiwan. What is the purpose of their visit?
- What are the government’s measures to address lagging digitalization?
- Why does Japan rely on bureaucrats and retired bureaucrats so much more than other countries?
- Are the Japanese youth supposed to be the warriors of the new Japanese armed forces in the face of rising tensions in the Indo-Pacific?
- What new structural innovations is the government contemplating to ensure government support for small- and medium-sized businesses?
Final Thoughts
This final briefing closes a year of steady transformation. Japan’s political center of gravity is shifting. Its economic model has evolved. Its defense posture is changing. And its leadership enters 2026 with more room to maneuver than expected.
Even in January, Japanese politics is unlikely to ease off the throttle for long.
Thank you for joining us throughout the year — 52 briefings, 255 episodes, and a growing global conversation. We look forward to continuing it with you in 2026.
Are you familiar with “Tokyo on Fire”? Episodes are available on YouTube “Langley Esquire”: excruciatingly-gained insights sifted over 40 years in-country! Entertainingly presented.
“Japanese Politics One-on-One” episodes are on YouTube “Japan Expert Insights”.
If you gain insight from these briefings, consider a tailored one for your Executive Team or for passing-through-Tokyo heavyweights.
To learn more about advocacy in Japan, read our article “Understanding the Dynamics of Lobbying in Japan.”
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