Japan government to unveil $238 billion stimulus

Japan's new Prime Minister Ishiba Shigeru meeting New Zealand's Christopher Luxon at the East Asia Summit last month. Photo / Jamie Ensor.

Japan’s minority government was expected Friday to unveil a $140 billion (NZ$238b) stimulus drive aimed at putting more money in consumers’ pockets after the ruling party’s worst election result in 15 years.

In the October 27 contest, voters angry over corruption in the Liberal Democratic Party (LDP) and inflation deprived new Prime Minister Shigeru Ishiba’s coalition of a majority in parliament’s lower house.

The 22 trillion yen (¥) stimulus bundle includes energy and fuel subsidies as well as cash handouts for low-income households in the world’s fourth-biggest economy, local media reported.

The overall impact of the package, set to go before parliament at a later date, is projected to be worth ¥39t when including loans and private-sector investment, the reports said.

Ishiba’s cabinet plans to formalise the measures on Friday and push a supplementary budget to pay for them through parliament by the end of the year, Kyodo News said.

To win enough lawmakers’ support, Ishiba agreed to include the lifting of an income tax threshold pushed by the opposition Democratic Party for the People (DPP).

The smaller party says this will ease labour shortages and boost consumer spending by encouraging part-time staff to work longer hours and earn more.

But critics worry that will reduce tax revenues by trillions of yen, leaving major holes in the national and local budgets.

Japan already has one of the world’s biggest ratios of national debt to output, with state spending predicted to balloon as its population ages and it struggles to find workers.

‘Quiet emergency’

Tax cuts “must be accompanied by a permanent source of revenue to fill the gap,” said SMBC Nikko Securities economist Yoshimasa Maruyama.

“Excessive” loosening of fiscal discipline would lead to higher interest rates in the financial markets, Maruyama said in a research note.

The package comes a year after Ishiba’s predecessor Fumio Kishida, who resigned earlier this year, announced a stimulus package worth ¥17t.

Ishiba, 67, has promised to revitalise depressed rural regions and to address the “quiet emergency” of Japan’s shrinking population with measures to support families such as flexible working hours.

Businesses worry the need to curry favour with opposition parties means Ishiba will avoid reforms needed to improve Japan’s competitiveness.

There are also concerns that the government may pressure the Bank of Japan to go slow on raising interest rates, even if this leads to a weaker yen.

The BoJ ditched negative interest rates in March, lifting borrowing costs for the first time since 2007 and then again in July. Another hike may come next month.

Separately, Ishiba has promised to spend ¥10t through to 2030 to boost Japan’s semiconductor and artificial intelligence sectors and help the nation regain its tech edge.

The new stimulus package may include plans for the government to buy a ¥200b stake in next-generation chip venture Rapidus, according to media reports.

After dominating tech in the 1980s, “Japan had a quite a long period of almost just sitting back and observing a lot of this innovation, particularly when it comes to artificial intelligence,” said Kelly Forbes at the AI Asia Pacific Institute.

“What we have seen in the last maybe two to three years is Japan really waking up to the potential” of such developments, she told AFP.

By Hiroshi Hiyama

© Agence France-Presse