Does Japan’s election lay the groundwork for a Liberal majority this spring?

Japan’s experience over the past five years should alarm Canadian policymakers, if they were paying attention. The yen has lost fully 50 percent of its value against the U.S. dollar in five short years, importing inflation that has pushed Japan’s long-term borrowing costs to levels not seen in decades. The 10-year Japanese government bond yield hit multi-decade highs in January as investors questioned the sustainability of the government’s fiscal trajectory. The 30-year yield briefly touched 3.88 percent—a record—before retreating as nervous officials tried to calm markets with vague assurances of “responsible” stimulus. What’s emerging in Japan is a vicious circle that could lie in Canada’s future. A falling non-reserve currency imports inflation, which forces the central bank to keep rates higher than it otherwise would, which increases the government’s debt servicing costs, which raises questions about fiscal sustainability, which further undermines confidence in the currency and bonds. Rinse and repeat until something breaks. Takaichi’s election victory suggests this approach remains politically viable, at least in the short term. She won despite—or perhaps because of—her explicit rejection of fiscal restraint. The opposition’s efforts to attack her spending plans found no purchase with voters facing rising living costs and stagnant wages. The lesson for Carney and the Liberal Party could not be clearer: double down on the “have your cake and eat it too” approach to government handouts and lax fiscal policy. Promise relief now, defer accountability later, and trust that voters will reward the immediate gratification while discounting future risks they don’t yet feel. This raises an uncomfortable question: Does Takaichi’s landslide suggest that Carney is similarly on track for a spring federal election triumph using the identical playbook? The polling certainly suggests Canadians are receptive to promises of tax relief and increased spending, particularly after years of inflation eroding purchasing power and slow wage gains. Yet the fundamental unsustainability of this approach—whether we call it Abenomics or Carneyomics—cannot be wished away by electoral victories or political spin. Japan’s rapidly devaluing currency is not a policy choice; it’s a market judgment on the credibility of the government’s fiscal framework. The rising yields on Japanese bonds are not partisan attacks; they’re investors demanding higher compensation for holding the debt of a government whose fiscal trajectory appears unsustainable. Canada is not immune to these same dynamics. Our long-term borrowing costs have risen alongside growing deficits. Case in point: the yield on the all important five year bond that prices Canadian mortgages is higher today than when the Bank of Canada began its now 275 basis point rate cut cycle in autumn 2024. Our currency has struggled against global peers, touching multi-year lows. The reality is a government that borrows $78 billion in a single year, adds $13 billion in new spending mere months later, and promises tax cuts on top isn’t all that concerned with maintaining the credibility of its fiscal framework. There is no free lunch in economics, whatever politicians in Japan, Canada, or elsewhere might suggest. Voters in both countries have yet to fully learn this lesson, but the textbook for our collective immiseration is being written in real-time by politicians either unable or unwilling to level with their publics. History shows that long-term prosperity and stable inflation require fiscal discipline, difficult choices, and leaders willing to prioritize economic sustainability over short-term political gain.