Japanese Prime Minister Fumio Kishida announced on Thursday a 17 trillion yen ($113 billion) economic package aimed at supporting households and businesses to cope with inflationary pressure. The package includes a 40,000 yen ($266) income and residential tax cuts, as well as 70,000 yen ($466) in payouts to households struggling to make ends meet. Mr. Kishida emphasized the importance of supporting people’s disposable income temporarily to avoid moving back to deflation. The government plans to extend fuel subsidies and allocate budget to promote investments in cutting-edge sectors like semiconductors and space industries. Additionally, Mr. Kishida aims to create an environment that encourages businesses to raise wages.
The economic package is expected to contribute to an average increase of 1.2 percent in Japan’s gross domestic product (GDP) over the next three years. However, there are concerns that this could lead to the issuance of additional government bonds and further increase Japan’s public debt, which is already twice the size of its economy, making it the highest among major economies. Inflation, driven by rising raw material costs, has remained above the central bank’s target of 2 percent for over a year, impacting consumption and the country’s economic recovery from the COVID-19 pandemic.
The rising cost of living has negatively affected Prime Minister Kishida’s approval ratings, placing pressure on him to take steps to alleviate the burden on households. Japan’s core inflation in September slightly decreased below the 3 percent threshold for the first time since August 2022, although it remained above the central bank target. The core consumer price index showed a 2.8 percent increase in September compared to the previous year, slightly exceeding market expectations but easing from August’s 3.1 percent. While prices of food and daily necessities continued to rise, the pace of increase was slower than in August, indicating some relief from cost-push pressures.
In conclusion, Prime Minister Kishida’s economic package aims to address the challenges posed by inflation and support low-income households and businesses. However, concerns remain regarding the potential impact on Japan’s public debt. The government’s efforts to stimulate the economy and alleviate the rising cost of living will be crucial for Japan’s economic recovery and the overall well-being of its citizens.