Japan’s minority government is poised to approve a $140 billion stimulus package on Friday, designed to boost consumer spending following the ruling party’s worst election result in 15 years.
In the October 27 election, voters expressed frustration over corruption within the Liberal Democratic Party (LDP) and rising inflation, resulting in a loss of the majority in the lower house for new Prime Minister Shigeru Ishiba’s coalition.
Government spokesman Yoshimasa Hayashi confirmed that the stimulus package, reportedly worth 21.9 trillion yen ($141.8 billion), will be formally approved later Friday by Ishiba’s cabinet.
“The package will generate business impacts worth about 39 trillion yen, with an additional 13.9 trillion yen allocated for general account spending to support the package,” Hayashi stated. “We aim to shift from a cost-cutting economy to one focused on high-value creation,” he added.
The stimulus includes subsidies for energy and fuel, as well as cash handouts of up to 30,000 yen ($194) for low-income households.
To finance the package, Japan plans to introduce a supplementary budget in the lower house by year’s end. To gain support, Ishiba agreed to raise the income tax threshold, a key demand of the opposition Democratic Party for the People (DPP), which argues that it will help reduce labor shortages and increase consumer spending by encouraging part-time workers to take on longer hours and earn more.
However, critics warn that this move could result in a significant reduction in tax revenues, further increasing Japan’s already massive debt, which exceeds 200% of its GDP.
Japan’s fiscal strain is expected to worsen as the number of retirees grows and the workforce declines. Additionally, rising interest rates could escalate the cost of servicing the country’s debt, according to Yoshimasa Maruyama, economist at SMBC Nikko Securities. He noted that tax cuts would need to be paired with a permanent revenue source to offset the deficit.
Ishiba, 67, has pledged to revitalize rural areas and address Japan’s demographic challenges, such as a declining population, with measures to support families, including flexible working hours.
However, businesses worry that Ishiba’s need for support from opposition parties may prevent him from implementing necessary reforms to improve Japan’s global competitiveness. There are also concerns that the government might exert pressure on the Bank of Japan to delay further interest rate hikes, potentially weakening the yen.
Government data on Friday showed a modest inflation rate of 2.3% for October, but revealed a nearly 60% year-on-year increase in rice prices. The surge in rice costs was attributed to hot weather, water shortages, and hoarding after an earthquake warning in August, as well as an influx of hungry tourists.
Separately, Ishiba has committed to investing 10 trillion yen through 2030 to boost Japan’s semiconductor and artificial intelligence sectors, aiming to restore the country’s technological edge. Media reports suggest the new stimulus package may include plans for the government to purchase a 200-billion-yen stake in the next-generation chip venture Rapidus.
After dominating the tech industry in the 1980s, Japan has been relatively passive in recent years, particularly in the fields of artificial intelligence. “In the last two to three years, Japan has really started to recognize the potential of these developments,” said Kelly Forbes of the AI Asia Pacific Institute
