TOKYO – On Friday, the Japanese government gave its approval to a significant economic package valued at approximately 21.3 trillion yen ($135 billion) aimed at addressing increasing living expenses, as Prime Minister Sanae Takaichi strives to boost growth via increased financial expenditure.
The initial economic support package introduced by Takaichi, who assumed the role of prime minister only a month ago, is projected to amount to 42.8 trillion yen once combined with expenditures from regional governments and the private sector, significantly exceeding the 39 trillion yen in previous year’s initiatives.
A set of actions within the package aim to assist the world’s fourth-largest economy due to worries that increased U.S. tariffs could negatively impact companies and everyday people.
Besides short-term actions to ease inflation, the government intends to increase funding in sectors like shipbuilding and artificial intelligence, considered essential for handling emergencies and ensuring national security.
Takaichi believes that these strategic investments could also boost the nation’s sustained economic development.
The possibility of a major stimulus package has led to a decline in the yen and Japanese government bonds recently, driven by investor worries regarding the nation’s worsening financial situation, which is already the most severe among developed economies, with debt exceeding twice the size of its economy.
In a clear effort to address these worries, Takaichi informed journalists that the economic plan aligns with the “financial stability of the country.”
Mentioning her motto of “responsible and active” financial management, she stated, “We will not recklessly seek to increase spending.”
To finance the economic package, the government intends to create a supplementary budget of 17.7 trillion yen for the current fiscal year ending in March, with the goal of passing it before the current Diet session concludes in December.
It would surpass the 13.9 trillion yen additional budget for the prior fiscal year established by Takaichi’s predecessor, Shigeru Ishiba, indicating her advocacy for substantial financial expenditure.
Japan’s additional budget allocations have surpassed 10 trillion yen in recent years, significantly higher than the few trillion yen that were common prior to the COVID-19 outbreak.
Despite the government’s intention to issue more bonds to address a budget deficit, Takaichi mentioned that the overall debt to be issued this fiscal year by March is expected to be less than the previous year’s figure of 42.1 trillion yen.
The government’s economic support plan is expected to briefly reduce consumer prices by as much as 0.7 percentage point, while increasing Japan’s real gross domestic product by 24 trillion yen, equivalent to an annualized growth rate of 1.4 percent, according to the Cabinet Office.
However, certain economists are casting doubt on the effectiveness of the most recent package, cautioning that boosting demand in a period of rising prices might drive costs even higher and place a burden on families.
Finance Minister Satsuki Katayama dismissed this perspective, informing reporters that the content and size of the package will not lead to what she referred to as “demand-pull inflation,” since it was created by gathering what is currently essential.
Notable items consist of cash gifts of 20,000 yen for each child, needing approximately 400 billion yen in public financial support, along with rice coupons or similar vouchers valued at 3,000 yen per individual to be provided by municipal officials.
The government will also include in the package the impact of abolishing a temporary gasoline tax and increasing the tax-free income threshold as part of initiatives to ease the economic pressure on families.
With rising food costs affecting households, the central government will allocate 2 trillion yen in subsidies to local authorities, allowing them to implement their own initiatives.
The package will also provide 500 billion yen in support for electricity and gas bills during the first three months of next year, lowering household energy expenses by approximately 7,000 yen on average over that time.
