TOKYO - Prime Minister Sanae Takaichi entered the final week of July facing the sharpest political test of her administration so far, as a fall in public support exposed growing unease over the weak yen, rising living costs and doubts about whether her growth strategy can reassure both households and financial markets.
Takaichi’s approval rating has dropped to 57% in July from 69% in June, according to a Yomiuri Shimbun poll, a significant decline for a prime minister who had until recently been able to frame her administration around strong leadership, economic revival and conservative institutional reform. The fall suggests that the political benefits of her election victory and early policy momentum are now being tested by inflation and currency pressure.
The weak yen has become the central problem. It has traded near its weakest level in about 40 years, pushing up import costs for food, energy and raw materials. For households, the issue is not abstract. A weaker currency means higher prices in supermarkets, utility bills and daily purchases, even if the government argues that long-term investment and wage growth will eventually improve living standards.
Takaichi defended her economic policies on July 27, saying that restoring Japan’s growth and competitiveness would help strengthen market confidence in the yen. She also argued that exchange rates are shaped by many factors, not only government policy. Her message was that Japan cannot fix the yen through short-term measures alone and must instead rebuild the economy’s underlying strength.
That is consistent with the administration’s broader agenda. Takaichi’s economic roadmap calls for more than 370 trillion yen in combined public and private investment through fiscal 2040, targeting strategic sectors including artificial intelligence, semiconductors, shipbuilding, energy, space, quantum technology and advanced manufacturing. The government wants to present this as a national renewal strategy rather than a conventional spending package.
The political difficulty is that voters are judging the government in real time, not in fiscal 2040. Households facing higher prices may not be persuaded by arguments about long-term productivity, industrial competitiveness or strategic investment. Opposition parties are likely to use the approval slump to argue that Takaichi has focused too heavily on markets, defense, institutional reform and growth slogans while failing to deliver immediate cost-of-living relief.
The food consumption tax debate is therefore becoming more important. Takaichi has supported the idea of temporarily suspending or cutting the 8% consumption tax rate on food, with the government expected to make a decision by early August. The policy could give households visible relief, but it also raises serious questions over fiscal discipline, implementation costs and how to restore the tax later without triggering a political backlash.
The proposal is also risky because financial markets are already nervous about Japan’s debt and bond yields. If a food-tax cut is seen as an unfunded concession to falling approval ratings, it could deepen investor concern that the government is placing politics ahead of fiscal credibility. If the government abandons or delays the idea, it risks looking insensitive to households affected by inflation.
The Bank of Japan is now the next major political marker. The central bank is expected to keep its policy rate unchanged at 1% at its July 30-31 meeting, but it is likely to signal that further rate hikes remain possible as price pressures build. Inflation risks are being driven by the weak yen, higher energy costs and stronger corporate pricing behavior.
The BOJ faces a difficult communication challenge. If Governor Kazuo Ueda sounds too cautious, the yen could weaken further and households may face more import-driven inflation. If he sounds too hawkish, bond yields could rise and Takaichi’s investment agenda could become more expensive to finance.
For Takaichi, either path carries political risk. Her administration has already had to revise the wording of its economic blueprint after earlier language raised concern that the government was trying to influence the BOJ. The final version clarified that specific monetary policy tools remain under the central bank’s authority, but the perception problem has not fully disappeared.
Markets continue to watch whether the government truly respects BOJ independence or still expects the central bank to avoid aggressive tightening to support growth. That question matters because Takaichi’s economic program depends on supportive investment conditions, while the BOJ must respond to inflation, wage growth and currency weakness.
The approval slump makes the BOJ meeting even more politically sensitive. A rate hike later this year could help support the yen, but it would also raise borrowing costs for households, businesses and the government. No hike could help preserve growth conditions, but it may leave the administration exposed to criticism that it is tolerating inflation and currency weakness.
Bond yields remain another constraint. Japan’s long-term yields have risen to levels not seen in decades as investors question the balance between Takaichi’s spending ambitions, BOJ independence and fiscal discipline. The administration wants to argue that stronger growth will make Japan’s debt more manageable, but markets want clearer evidence that investment plans will be funded responsibly.
The extended Diet session ended last week after giving the ruling bloc more time to handle remaining legislation and coalition priorities. The passage of the revised Imperial House Law gave Takaichi a conservative achievement, while the secondary-capital agenda helped address the priorities of the Japan Innovation Party. But the close of the session also shifted attention away from parliamentary tactics and back toward economic management.
That transition may be uncomfortable for the prime minister. In the Diet, Takaichi could rely on coalition numbers and party discipline. In markets and public opinion, she has less control. The yen, bond yields and household prices are now shaping the political environment more than legislative maneuvering.
The revised Imperial House Law remains part of the political background. The law allows female imperial family members to remain in the Imperial House after marriage and permits adoption from former male-line imperial branches, while preserving male-line succession and excluding female emperors. It strengthened Takaichi’s standing with conservatives but continues to draw criticism from those calling for broader debate on female succession.
Coalition management with Ishin will also remain important in the next phase. Ishin will want to show that its cooperation with the LDP produced reform-oriented results, not only conservative legislation. If Takaichi’s approval continues to fall, coalition partners may become more sensitive to how closely they are tied to her economic policy.
The July 27 political picture is therefore defined by a shift from legislative achievement to economic accountability. Takaichi has a growth roadmap, a conservative policy victory and a functioning coalition, but the weak yen and cost-of-living pressure are beginning to erode the political capital that made those achievements possible.
The central question is whether Takaichi can convince voters that her long-term investment strategy will produce near-term stability. If the BOJ meeting helps calm the yen and the government presents a credible food-price relief plan, she may be able to stabilize support. If the yen weakens further and households see little immediate benefit, the approval slide could become the start of a much more difficult phase for her government.
What To Watch Next
The BOJ’s July 30-31 policy meeting is the most important event this week. Markets will focus less on whether rates stay at 1% and more on how strongly the central bank signals future hikes.
The yen remains the most immediate political risk. Further weakness could increase pressure on the Finance Ministry to intervene and intensify criticism of Takaichi’s economic policy mix.
The government’s decision on possible food consumption tax relief is expected by early August and could become the next major household-politics issue.
Takaichi’s approval rating should be watched closely after the sharp July decline. A further fall would increase pressure for cabinet changes or a clearer cost-of-living package.
Bond yields remain a key test of whether investors accept the government’s 370 trillion yen investment roadmap as fiscally credible.
Coalition management with Ishin will remain important now that the Diet session has ended and the government moves from passing bills to implementing policy.
