Marc El-Lazidi, chief investment officer at Jesmond Mizzi Financial Advisors, analyses how Japanese Prime Minister Sanae Takaichi and US President Donald Trump are simultaneously pushing the limits of fiscal orthodoxy to erode debt burdens through currency weakness.
Why is the first female prime minister mirroring Trump’s ‘One Big Beautiful Bill’?
US President Donald Trump’s ‘One Big Beautiful Bill’ allocates tens of billions for defence, shipbuilding, missile systems, and domestic manufacturing, while reducing social programmes and clean-energy initiatives.
Japan’s Prime Minister Sanae Takaichi announced a record fiscal 2026 budget of about 120 trillion yen, along with a 21.3 trillion-yen stimulus that aims to accelerate defence spending to 2% of GDP by 2027 − two years earlier than planned.
This parallel is intentional; as I mentioned in November 2024, Scott Bessent, the US Treasury Secretary and key architect of Trump 2.0, has openly cited Shinzo Abe’s “three arrows” − fiscal stimulus, monetary easing and structural reform.
Overall, the message remains consistent: “Spend now, grow later, and trust the central bank to keep things stable.”
Will the Bank of Japan support Sanae Takaichi’s policy?
The alignment goes beyond numbers. Both administrations accept that central banks will have to remain accommodative while governments spend. Both rely on unconventional liquidity channels: Trump via stablecoins backed by Treasuries, Japan via continued Bank of Japan support for government bond markets.
Governor Kazuo Ueda is walking a tightrope with no safety net below. The BoJ raised rates to 0.75% in December 2025, the highest in three decades, yet real interest rates remain deeply negative because core inflation sits just above 2%.
In practice, Japan is still stimulating the economy even while claiming to normalise policy. At the January 2026 meeting, one board member pushed for a jump to 1%, but he was outvoted 8-1, signalling that the consensus favours patience.
Why is the yen so weak despite rate hikes?
Currency markets follow yields, and right now the yield gap between Japan and the US remains high. That gap has revived one of history’s biggest carry trades: borrow cheap yen, invest in higher-yielding foreign assets, and pocket the difference. Japanese households are pouring roughly nine trillion yen a year into foreign stocks via investment trusts. The yen has fallen about 35% over five years and now trades near 160 to the dollar, close to 37-year lows.
“Japanese households are pouring roughly nine trillion yen a year into foreign stocks via investment trusts”
What is at stake in Japan’s snap election, and how might the result reshape its economic and currency strategy?
Takaichi called a snap election for February 8, just three months into her tenure, because her current coalition holds only a razor-thin majority of 233 seats in a 465-seat lower house. Every budget and every reform requires negotiation; governing is slow and compromise-heavy. A decisive victory would grant four to five years of political capital to push through her ambitious agenda: markets would interpret a strong mandate as a green light for the status quo, fiscal stimulus first, BoJ gradualism second, and yen weakness tolerated as the price of reflation.
In a world where Washington prints, Tokyo borrows and Europe watches, how should European ordinary investors position themselves?
Both Washington and Tokyo are stretching the limits of fiscal orthodoxy at the same time. Trump wants the Fed to loosen enough to keep growth humming and debt-service costs manageable; Takaichi needs the BoJ to normalise at a glacial pace so that yen weakness can erode some of the real debt burden. In both cases, central bank independence is under pressure, explicitly in the US through public statements, implicitly in Japan through fiscal-monetary coordination.
A euro-based investor should carefully consider exposure to the dollar and the yen, favour companies with strong balance sheets, pricing power and global revenues, and bond issuers with solid cash flows and manageable refinancing needs. Above all, staying liquid and flexible, keeping some cash or short-term instruments as dry powder, allows individual investors to add exposure when volatility spikes, turning market turbulence from a threat into an opportunity rather than a reason to panic.
This interview does not intend to constitute an offer or agreement to buy or sell investments or give investment advice and the contents therein should not be construed as such. Investors should remember that past performance is no guide to future performance and that the value of investments may go down as well as up. The company is licensed to conduct investment services by the MFSA under the investment services act and is a member of the Malta Stock Exchange. The directors or related parties, including the company and their clients, are likely to have an interest in securities mentioned in this article. For more information, contact Jesmond Mizzi Financial Advisors Ltd of 67, Level 3, South Street, Valletta, on 2122 4410, or e-mail [email protected].
