We are pleased to deliver JAPAN FORESIGHT’s first-ever Japan Risks Report, which contains our comprehensive, forward-looking analysis of the most critical political and economic challenges facing Japan in 2026.
Prime Minister Takaichi Sanae will enter 2026 seemingly in a dominant position in the Japanese political system and determined to pursue an ambitious agenda to bolster Japan’s industrial strength and military power. However, this agenda is constrained by political fragility and a severe fiscal straitjacket. These challenges come as Japan has a critical debate over whether its future prosperity and security depend on economic openness or whether it must reduce its dependence on the outside world as much as possible. Key findings include:
- Takaichi is determined to test the limits of Japan’s fiscal constraints, deploying government spending to support industrial policy and boost growth, but risks an adverse market reaction that could have steep political and economic consequences.
- From inbound investment screening to a pivot on corporate governance reform to new restrictions on foreign residents and tourists to intelligence reforms, Takaichi is outlining agenda that could make Japan less open to the world.
- The growing tensions with China – and unease with the United States – could boost support for Takaichi’s bid for self-reliance and strategic autonomy.
Ultimately, 2026 could be a turning point for Japan’s politics, whether it can move from instability to durable government; for its economy, whether Takaichi can signal a new direction for Japan’s growth prospects without triggering a crisis; and for Japan’s place in the world, as the country ponders how much it can rely on others for its security and prosperity.
Japan Foresight 