Japan approves $141 billion stimulus to boost economy, offset living costs

The package totalling 21.9 trillion yen, equivalent to $141.71 billion, is aimed at easing rising living costs and promoting business innovation and investment. The government estimates that, when factoring in private-sector spending as a result of the stimulus, the package’s impact could be as much as ¥39 trillion.

Ishiba has said his government will focus on getting the economy to completely exit deflation and create growth driven by higher wages and investments. But he faces a bumpy road ahead in steering policy after the ruling coalition lost its majority in the lower house of parliament following a general election in late October.

Under the new economic package, the government will give cash handouts of ¥30,000 to low-income households as an inflation-relief measure, with an extra ¥20,000 per child to be given for families with children.

The government is also planning to resume subsidies for gas and electricity bills from January to March next year. The cabinet estimates that the energy subsidies will reduce consumer prices by a monthly average of 0.3 percentage point from February to April.

The government has intermittently provided energy subsidies since January 2023, which has been a major factor affecting consumer inflation trends. Underlying inflation, which excludes fresh food and energy prices, rose 2.3% in October from a year earlier, government data released Friday showed.

In an attempt to reinforce chip supply chains and promote innovation in artificial intelligence, the government will also provide 10 trillion yen in subsidies and other financial support to businesses in relevant fields until fiscal 2030.

The package includes some measures proposed by opposition parties as Ishiba seeks to shore up political support for his coalition.

Officials will discuss the possibility of raising the ceiling for tax-free income, which is currently set at ¥1.03 million. Lifting the threshold is one of the main campaign promises made by the opposition Democratic Party for the People.

The higher ceiling would encourage part-timers to work longer hours, possibly helping to ease the nation’s chronic labor shortages and stimulating consumer spending.

On the other hand, it could worsen the Japanese government’s fiscal situation, which is already among the worst in major economies. Japan’s public debt has grown to more than double the size of its economy. With the central bank expected to keep raising interest rates, repaying that debt will likely cost more.

If the income-tax barrier is raised to ¥1.78 million, as sought by the DPFP, that could reduce tax revenue for the central and local governments by up to 8 trillion yen, according to government estimates.

The latest package will require about ¥13.9 trillion in additional government general-account spending.