Capital Economics: Japanese Prime Minister Sanae Takaichi may have misjudged economic issues.

Capital Economics stated in a report that Japanese Prime Minister Taro Aso is misjudging the weaknesses of the Japanese economy. Taro Aso believes that insufficient domestic capital investment is the main drag, but Capital Economics Asia-Pacific chief Marcel Thieliant believes that the slowdown in GDP growth is mainly due to the shrinking labor force, while productivity growth is actually high compared to other economies. He added that in fact, compared to other economies, Japan's huge capital stock is relatively advantageous for increasing the country's economic supply potential. Thieliant warned that Taro Aso's misjudgment could lead to wrong policies, including the insufficient immigration to offset labor shortages and potentially causing resource misallocation in industrial policy. Against the backdrop of persistently constrained labor, expansionary fiscal policy could cause basic inflation to remain above the Bank of Japan's 2% target for a longer period and increase upward pressure on long-term bond yields.