Prime Minister Fumio Kishida has instructed his Cabinet ministers to develop a new economic package by the end of October. The objective of the package is to address the challenges posed by inflation and support the economy through measures such as increasing wages and promoting investment.
Kishida, who emphasizes the importance of wealth redistribution, stated during a Cabinet meeting that the government intends to reduce tax and social security burdens while providing various benefits. This initiative comes at a time when Japan’s fiscal health is significantly weaker compared to other developed nations.
One of the major components of the economic package involves reviewing the utilization of emergency funds that were allocated to deal with crises like the pandemic. These funds will be redirected to foster sustained wage growth. The package will be funded through a supplementary budget and will focus on five key areas: easing the impact of inflation on households, promoting wage growth, increasing investment, addressing challenges related to Japan’s declining population, and ensuring the safety and security of the Japanese people.
The government has outlined specific steps to achieve these objectives, which include offering subsidies to curb the rise in gas prices and electricity and gas bills. Additionally, support will be provided to small and midsize companies that have struggled to increase wages and cope with labor shortages. The government also intends to encourage investment in strategic sectors such as semiconductors.
Prime Minister Kishida emphasized that Japan is at a critical juncture of transitioning from a “cost-cut” economy to one with a virtuous cycle of pay hikes and proactive corporate investment. He underscored the importance of seizing this opportunity to make the transition successfully.
Although the exact size of the economic package has not been determined yet, the government plans to draft a supplementary budget for fiscal year 2023. The timing of the package has sparked speculation that Kishida may dissolve the House of Representatives for a snap election this year.
To ensure fiscal discipline is maintained, Finance Minister Shunichi Suzuki stated that each policy item will be thoroughly examined to include only what is truly necessary.
Japan’s inflation rate has been on the rise due to surging import costs of energy and raw materials, prompting companies to raise wages. The sustainability of these wage increases is crucial for Prime Minister Kishida’s goal of achieving wealth redistribution and for the Bank of Japan in achieving their stable inflation target.
Critics argue that additional fiscal spending to stimulate demand may further accelerate inflation, with the recent weakness of the yen being a result of monetary easing that boosts import prices. Japan’s core consumer prices, a measure of inflation, have remained above the Bank of Japan’s 2 percent target for the past 17 months, reaching a four-decade high of 4.2 percent earlier this year.
In conclusion, Prime Minister Fumio Kishida aims to address the challenges posed by inflation and support the economy through a new economic package. By implementing measures such as increasing wages and promoting investment, the government aims to alleviate the impact of inflation on households and ensure sustained economic growth. However, careful consideration will be given to maintain fiscal discipline and prevent further acceleration of inflation.