Japan growth minister says economy has exited reflationary phase

Japan's Growth Strategy Minister Minoru Kiuchi stated that the country has moved past the reflationary policies characteristic of the "Abenomics" era, signaling a shift in the nation's economic approach. At a press conference on Friday, Kiuchi emphasized that Japan is no longer in a phase of aggressive monetary easing and flexible fiscal spending, but is instead experiencing gradual price increases and rising interest rates.

His comments followed the yen's recent weakness and higher government bond yields, indicating that the government may be taking steps to support the currency and ease investor concerns about Finance Minister Satsuki Katayama's spending plans.

The government's recent statements suggest a shift towards a more cautious fiscal policy, diverging from the "Abenomics" strategy that was initiated by former Prime Minister Shinzo Abe. U.S. Treasury Secretary Scott Bessent had previously urged Japan to abandon reflationary policies associated with Abenomics. Kiuchi attempted to differentiate the current policy mix from Abenomics while reiterating that Japan has not yet fully emerged from deflation.

He clarified that if Abenomics and Sanae-nomics (referring to the current policy under Prime Minister Sanae Takaichi) are viewed as the same, his remarks imply that the latter is not reflationary.

Kiuchi's appointment to the cabinet was part of a reshuffle last week, signaling policy continuity under Prime Minister Sanae Takaichi's administration. However, some market analysts remain skeptical, suggesting that the government may still pursue a loose fiscal policy while attempting to control the Bank of Japan's increasing interest rates. The Bank of Japan recently raised its policy rate, indicating that the government may be trying to find an appropriate level for the yen.