On Friday, Japan passed an extra budget worth around 13.1 trillion yen ($88 billion) aimed at helping households cope with the rising cost of living and corporations boost domestic investment, even amid concerns over the country’s worsening finances. The budget will issue about 8.9 trillion yen in new bonds to fund an economic package featuring temporary cuts to income tax, payouts to low-income families, and subsidies to curb gasoline and utility bills. The government aims to boost chip industry efforts and step up measures to support sustained pay increases in Japan, the world’s second-biggest economy. The lower house endorsed the plan without revisions, passing it without opposition votes. The extra budget will be paid for by issuing the new bonds and using revenue from a sales tax increase that came into effect in April. The spending is a massive effort to counter the impact of surging global prices and the weak yen on household finances.
The package is expected to have a limited effect on inflation, which remains high as energy costs rise and the government has boosted spending on food subsidies. But the move comes as public support for Prime Minister Fumio Kishidas’s “new capitalism” policy has fallen to its lowest level since he took office two years ago, as inflation has accelerated. Wage gains have been slow to match.
Analysts have raised concerns that the package could exacerbate the government debt, the world’s most prominent among major developed nations. The government says it is committed to restoring its fiscal health but is currently prioritizing actions it believes will promote growth. The plan also faces criticism from opposition lawmakers who say it is doing too little to address rising living costs and have called for steps including a reduction in the consumption tax.
Prime Minister Kishida has defended the package as necessary to help people and businesses overcome deflation and put the economy on a growth track. He said he had no intention of raising the consumption tax, which is the primary source of government revenues, and that government debt would shrink only when the economy grew.
The supplementary budget reflects the government’s preference for using fiscal tools to relieve household burdens rather than tweaking monetary policy or intervening in the currency market to prop up a weak yen. Toru Suehiro, a senior economist at Daiwa Securities, said the timetable for the budget reflects pressure from the LDP’s more minor ally, Komeito, to act as parliament’s approval is due in May. With upper house elections for July 10, the governing coalition must show voters its ability to boost the economy before the vote.
