Japan Unveils $250 Billion Economic Package to Counter Inflation and Support Households

The Japanese government has approved a $250 billion economic package, featuring subsidies to address rising energy costs and direct cash aid to low-income families, as inflation driven by a weakening yen continues to pressure consumer spending.

In this new initiative, Prime Minister Shigeru Ishiba’s administration committed to increasing disposable incomes by raising the tax-free salary threshold. This decision came after concessions were made to an opposition party to ensure the passage of a supplementary budget necessary to fund the plan.

The move follows a setback for Ishiba’s Liberal Democratic Party (LDP) and its coalition partner, who lost their House of Representatives majority in the October 27 general election. Shortly after assuming office on October 1, Ishiba dissolved the lower house in response to the electoral loss. The administration now aims to pass an additional $90 billion budget for the fiscal year ending March 2025, with an extraordinary parliamentary session expected to commence next Thursday.

Despite Japan’s fragile fiscal health—the weakest among major advanced economies—local and national governments plan to allocate approximately $140 billion. This has led to criticism that the package may be politically motivated, designed to bolster the popularity of Ishiba’s Cabinet.

Japan’s economy saw growth for the second consecutive quarter from July to September, fueled by robust private consumption, following the largest average wage increase in over three decades, negotiated earlier this year between labor and management.

However, concerns remain that consumer confidence could decline again as inflation, partly caused by the yen’s depreciation and the resulting higher import costs, shows little sign of abating. With inflation outpacing wage increases, many households have tightened spending. The economic package aims to counteract inflation’s impact and support Ishiba’s goal of revitalizing struggling regional economies.

According to the Cabinet Office, the package is expected to reduce consumer prices by around 0.3 percentage points and boost Japan’s inflation-adjusted GDP by an annual 1.2 percentage points.

Approximately $82 billion of the package will go toward offsetting increases in electricity, gas, and gasoline prices. Additional cash payments will be made to low-income households exempt from resident tax, with further assistance for families with children.

Another $82 billion will be allocated to stimulate economic growth, including a multiyear program of over $65 billion to support the artificial intelligence and semiconductor sectors. Ensuring public safety is also a focus, with roughly $47 billion set aside as Japan deals with a series of natural disasters and a rise in online recruitment-driven robberies.

In the lead-up to the announcement, Ishiba’s LDP and its coalition partner, the Komeito party, agreed to an opposition party’s request to raise the non-taxable income threshold. The Democratic Party for the People (DPP), led by lower house member Yuichiro Tamaki, quadrupled its representation in the recent election and advocated for a higher ceiling to stimulate consumption. The three parties have committed to further discussions to determine the scope of the threshold increase, which could potentially reduce national and local tax revenues by up to $52 billion annually.

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