Japan PM Unveils $113 Billion Economic Package to Ease Inflation Pain

Japanese Prime Minister Fumio Kishida speaks to reporters about ALPS-treated water from the Fukushima Daiichi Nuclear Power Plant at the prime minister's office on Aug. 24, 2023. (STR/JIJI Press/AFP via Getty Images)

Japanese Prime Minister Fumio Kishida has announced a 17 trillion yen ($113 billion) economic package that’s aimed at supporting households and businesses to cope with inflationary pressure.

The package will include a temporary 40,000 yen ($266) tax cut per person beginning in June 2024, as well as 70,000 yen ($466) in payouts to households that are struggling to make ends meet, he said at a Nov. 2 news conference.

“For the first time in 30 years, we are facing a great opportunity to move to a new economic stage,” Mr. Kishida was cited as saying by news outlet Japan Today.

“On the other hand, in the current situation where the rise in wages is not catching up with the rise in prices, it is necessary to support people’s disposable income temporarily so as to avoid moving back to deflation.”

The government will extend fuel subsidies through April next year and allocate budget to spur investments in the country’s cutting-edge sectors such as the semiconductor and space industries, according to the news outlet.

Mr. Kishida said that he aims to create an environment that encourages businesses to raise wages.

“If we miss out on the opportunity, it will become more difficult to exit deflation. We will boost the disposable incomes of households and consumption, and create a virtuous cycle,” he said.

This economic package is expected to contribute to an average increase of 1.2 percent in Japan’s gross domestic product over the next three years, according to a government estimate.

However, there are concerns that this could necessitate the issuance of additional bonds by the government and add to Japan’s public debt, which is currently 261 percent of its economy, the highest ratio among major economies.

Inflation, fueled by the rising cost of raw materials, has stayed above the central bank’s target of 2 percent for more than a year, weighing on consumption and clouding the outlook for an economy making a delayed recovery from scars left by the COVID-19 pandemic.

The rising cost of living is partly blamed for pushing down Mr. Kishida’s approval ratings, piling pressure on the prime minister to take steps to ease the pain on households.

Japan’s core inflation in September slowed below the 3 percent threshold for the first time since August 2022, although it remained above the central bank target, government data showed on Oct. 20.

The core consumer price index, which excludes volatile fresh food costs, increased by 2.8 percent in September compared with the previous year, slightly exceeding a median market forecast of a 2.7 percent gain but easing from 3.1 percent in August.

Prices of food and daily necessities continued to rise but at a slower pace than in August, a sign that cost-push pressures were easing.

Reuters contributed to this report.