"Congratulations! Japan is finally becoming more like the West." These were the words, laced with irony, I received from the head of a European financial institution, an old friend, during an international conference in the Middle East in the autumn of 2024. To him, the significant loss by Japan's ruling coalition in the snap election the previous day seemed to mirror the chaotic political landscape of the West, where the far-right was gaining ground in France, the German coalition government was on the brink of collapse, and political divisions were deepening in the United States.

I replied, "Japan's political situation is probably still better than the West's." However, there is a more serious issue that Japan faces, one that surpasses even the challenges in the West: our fiscal problem.

Japan's critical fiscal situation, a matter of concern for many years, has worsened even further in the wake of the COVID-19 pandemic. The Ministry of Finance estimates Japan's debt-to-GDP ratio to have exceeded 250% in 2024, an exceptionally high level not only among major economies but globally.

As Japan's economy overcame the pandemic and the "virtuous cycle of growth and distribution" starts to take hold, our nation is entering a new stage. The policy advocated by Keidanren, "No fiscal consolidation without economic revitalization," is indeed correct. However, it is also true that steady economic revitalization needs long-term support backed by fiscal soundness and readiness for future shocks.

Our nation's fiscal situation leaves no room for pandering to populism. Now is the time to ascertain truly critical and urgent policy issues, such as energy, while at the same time tackle fiscal consolidation with unwavering determination through a variety of measures, including the normalization of the government's spending structure.

The private sector also has a critical role in achieving fiscal consolidation. Initiatives like the GX Promotion Strategy, which targets over 150 trillion yen in combined public and private investment, must effectively mobilize private funds to create mechanisms that foster sustainable economic growth. Impact investing, a topic under discussion in the Committee on Financial and Capital Markets of Keidanren, is one such approach. It's crucial that we leverage the power of finance to drive forward the regrowth of Japan's economy.

"The public and private sectors are working closely together to address challenges in Japan." I hope to confidently say this to my European friend mentioned at the beginning when I next meet him.