Japan's political landscape is entering a critical phase as Prime Minister Takaichi seeks to navigate budget negotiations and tax reform discussions that could significantly impact foreign residents' financial obligations. With the ordinary Diet session set to convene on January 23, 2026, the government faces an uphill battle securing support for its fiscal year budget amid fractured parliamentary dynamics. According to NHK, Prime Minister Takaichi announced on January 5 that she would seek cooperation from opposition parties, particularly the Democratic Party for the People (Kokumin Minshuto), to pass the new fiscal year budget. This approach reflects the challenging political reality facing her administration, which currently governs through a coalition with the Japan Innovation Party but lacks a clear parliamentary majority. The budget negotiations occur against a backdrop of significant policy disagreements. The Constitutional Democratic Party (CDP), led by Noda, has taken a hardline stance, indicating it may submit a no-confidence motion against the Takaichi Cabinet during the upcoming session. This opposition reflects deeper concerns about the government's economic policies and their effectiveness in addressing Japan's fiscal challenges. For foreign residents, the most consequential development is the planned establishment of a "National Conference" to design a new tax credit system with benefits (kyufu-tsuki zeigaku koujo). According to NHK, Liberal Democratic Party Policy Research Council Chairman Kobayashi stated on January 5 that the party is rushing to coordinate with other parties to launch this conference within January. This system could fundamentally change how tax relief is administered in Japan, potentially affecting how expats calculate and receive tax benefits. The proposed tax credit with benefits system represents a significant shift from Japan's current tax structure. Unlike traditional deductions that only benefit taxpayers, this system would provide direct payments to low-income individuals who owe little or no tax. While details remain under discussion, such reforms typically aim to reduce income inequality and provide more equitable support across income levels. Foreign residents should monitor these developments closely, as implementation could affect filing requirements and eligible benefits. Wage growth remains a central concern in budget discussions. Chief Cabinet Secretary Kihara, speaking at the Japanese Trade Union Confederation's New Year reception on January 5, emphasized that the government would not simply delegate wage increases to businesses but would actively work to create an environment supporting sustained wage growth. For expats working in Japan, this signals continued government pressure on employers to raise salaries, though the effectiveness of such policies remains to be seen. Prime Minister Takaichi's New Year press conference reinforced her administration's priorities. She stated that "without political stability, we cannot advance robust economic policies or diplomacy and security," emphasizing the need for cross-party cooperation based on the coalition agreement with the Japan Innovation Party while seeking broader support from other opposition parties. The fragmented political environment creates uncertainty for fiscal policy implementation. Different opposition parties are taking varying approaches to budget negotiations and their relationship with the government, making it difficult to predict which proposals will gain sufficient support. This volatility could delay important tax reforms or result in compromised legislation that differs significantly from initial proposals. Foreign residents should prepare for potential changes to Japan's tax system in the coming months. While the National Conference's recommendations will require time to implement, the direction of reform appears set toward more progressive taxation and enhanced support for lower-income individuals. Expats should consult with tax professionals familiar with both Japanese tax law and international tax treaties to understand how proposed changes might affect their specific situations. As budget debates unfold throughout 2026, staying informed about tax policy developments will be essential for financial planning. The outcome of these negotiations will shape Japan's fiscal landscape for years to come, with direct implications for how foreign residents contribute to and benefit from the Japanese tax system.