sigma insights 04/2026: Preparing for a fiscal policy-driven cycle in Japan

Japan's Prime Minister Takaichi Sanae won an unprecedented majority in the recent snap election, ushering in a new era of "proactive and responsible fiscal policy". The issue is not whether fiscal expansion will happen, but how "responsible" its composition will be, as proposed tax cuts raise questions over long term inflation pressures, yen stability, and the path of interest rates. Higher yields have benefitted Japanese life insurers through stronger reinvestment income, improved economic solvency and the ability to offer more attractive policy returns. However, the recent surge in yields may have gone beyond their expectations, with significant uncertainty around its future path.

Figure 3

Japanese government bond spreads

Source: MOF, Macrobond, Swiss Re Institute