Nobuko Kishi's Approval Rating Slumps, Fiscal Expansion Risks Emerge, Yen and JGBs Face Selling Pressure

Japanese Prime Minister Nobuko Kishi is currently facing her toughest political challenge since taking office. According to the latest public opinion polls released by Japanese media, while the approval rating for Kishi's cabinet remains above 50%, it has fallen to the lowest level since her inauguration. In response, Kishi stated in the Diet that although she has not yet conducted a detailed analysis of the reasons behind the decline, she will take the poll results as a reflection of public sentiment and consider them seriously.

Market strategists warn that the drop in approval ratings could force the government to adopt more accommodative fiscal and tax policies. Naka Matsuzawa, Chief Strategist at Nomura Securities, pointed out that if public opinion continues to deteriorate, the government may feel compelled to push forward with existing policies more aggressively in order to regain voter support—bad news for both bond markets and the yen.

In particular, the campaign promise to 'reduce the consumption tax on food' is currently lagging in implementation. Although critics argue that the move is fiscally irrational and amounts to voter appeasement, the government still plans to finalize the policy by early August.

Matsuzawa emphasized that if the government intensifies inflation-stimulating measures, it would not only threaten the yen but could also disrupt global bond markets. Moreover, this sends a negative signal to Japanese equities, as it may be interpreted as a sign of declining government policy effectiveness.

Rinto Maruyama, Senior Strategist at SMBC Nikko Securities, analyzed that public dissatisfaction stems primarily from the government's failure to effectively alleviate the pressure of rising prices. This dissatisfaction, he said, will be the main driver pushing the government to further expand fiscal spending to strengthen anti-inflation measures.