Japan’s Kishida unveils stimulus package as support decreases

TOKYO: Japanese Prime Minister Fumio Kishida (pic) and his cabinet approved a larger-than-expected economic stimulus package that aims to boost growth and help households hit by inflation, as Kishida’s administration tries to shore up falling support.

The cabinet approved measures that will be worth more than 17 trillion yen (US$113bil) including the impact from tax cuts and other costs.

Around 13.1 trillion yen of spending will be funded through an extra budget, according to the cabinet office.

“We haven’t achieved a virtuous cycle of growth yet,” Kishida said in a press conference last Thursday, after the cabinet approved the measures.

“The biggest problem we have is that wages haven’t caught up with inflation.”

Income and residential tax rebates worth 3.5 trillion yen, additional aid for low-income households and growth measures form a key part of the package.

The package is Kishida’s latest attempt to appease voters who are critical of his handling of inflation. Price growth – the fastest in decades – has outpaced pay rises.

The measures are expected to boost the economy by 1.2% each year for the next three years through a 19 trillion yen lift to the economy in total, according to cabinet office calculations. They are also expected to suppress overall inflation by one percentage point while energy-related subsidies are in place, largely through April for now.

While the package is smaller compared to others in recent pandemic years, the scale of fiscal spending is around twice the size expected by economists surveyed by Bloomberg last month.

Total fiscal spending will be worth 21.8 trillion yen, according to the cabinet office.

“It’s too big given the current state of the economy,” said Akihiro Morishige, senior economist at Mitsubishi Research Institute.

“I agree with the government that the country is at an extremely important phase for overcoming deflation, but given Japan’s severe fiscal situation, it would have been better to focus on those who are truly suffering from high prices.”

The extra outlays will likely add to the country’s mountain of debt, and may have little impact on voters’ opinion of Kishida.

“Part of the reason why people don’t like tax rebates much is they think they will be temporary,” said Harumi Taguchi, principal economist at S&P Global Market Intelligence.

“Many people may just save them as they expect taxes to go back to the same level. I also have doubts about the impact because it won’t be delivering money to people in a tangible way.”

Support for Kishida continued to slide even after he outlined the planned tax cuts and handouts. Surveys by the Nikkei newspaper and broadcast news network ANN last week found approval for Kishida at its lowest since the premier took office two years ago, at 33% and 26.9% respectively.

The Nikkei poll showed that around two-thirds of respondents viewed plans for an income tax reduction in the package as inappropriate.

“Fiscal spending in Japan is out of control,” said Steen Jakobsen, Saxo Bank’s chief investment officer. “It reeks of being a desperate move from the prime minister to save his political career.”

The income tax cuts are set to be 30,000 yen per person, and the residential tax rebate 10,000 yen per person.

They won’t start until June next year, a delay that may frustrate households seeking quick relief from inflation.

The package comes with Kishida yet to make clear how he will fund bigger-ticket initiatives such as boosting spending for defence, and countering the declining birthrate.

There’s also simmering discontent within Kishida’s own ruling party, with one senior member telling parliament that the premier lacks leadership, in an unusual display of disunity.

Finance Minister Shunichi Suzuki said that the government still seeks to achieve its primary balance fiscal health target by the year ending March 2026.

He emphasised that the country is at an important inflection point on whether it manages to truly overcome deflation.

“Higher wages would be the biggest help for households,” S&P’s Taguchi said. “The government should focus on helping companies create an environment where companies find it easy to raise wages.”

With his latest package, Kishida aims to also spur future growth, rather than just boost sagging demand now. Some of the measures aim to help push up wages, and add to support for the domestic production of advanced semiconductors, and research into frontier chips. — Bloomberg

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