Economic stimulus package for Japan
Economy on credit
Japan’s new Prime Minister Takaichi is launching a huge economic stimulus package to boost the flagging domestic economy. Economists warn that this is not sustainable.
Shinzo Abe would definitely have liked that. The protégé of the former Japanese Prime Minister, who was murdered in 2022, is printing money – and how: Prime Minister Sanae Takaichi’s cabinet has approved the largest economic stimulus package since the corona pandemic. The equivalent of around 117 billion euros is expected to pull Japan’s economy out of the crisis.
A one-off payment of 110 euros per child, a subsidy of 40 euros per household for electricity and gas costs, food vouchers, for example for the staple food rice, which has become very expensive – this is intended to make Japanese households suffering from rising prices happy and to stimulate the economy.
In addition to Takaichi’s classic fiscal program, there are also tax cuts, for example on gasoline, and income tax relief.
Little trust in the financial markets
This package is partly financed through additional tax revenue. The so-called cold progression meant that for many employees, higher salaries due to inflation led to higher taxation, but were completely eaten up by inflation.
As is often the case, Japan finances the rest on credit. National debt is already around 240 percent of gross domestic product. Nevertheless, Japan plans to issue additional government bonds.
The reaction of the financial markets to these plans is clear: interest rates on ten-year bonds shot up immediately after the announcement, and the yen fell even further. In just five years, the national currency has lost well over 40 percent of its value.
There is also a problem with productivity
It is no surprise that Takaichi is putting together an economic stimulus package just a few weeks after taking office. But the extent of it is. Economists primarily criticize the lack of sustainability and lack new ideas. Martin Schulz, economist at the technology group Fujitsu, does not believe that this will make Japan more competitive in the long term.
Incentives that could increase the productivity of Japanese companies were completely absent. This is “sorely necessary,” complains Schulz. Politics hardly promotes companies’ flexibility. Appropriate framework conditions could be created through deregulation.
Japan is lagging behind digitalization. New technological tools are urgently needed, for example with the help of artificial intelligence. The IT infrastructure in many companies is outdated. Conversely, innovative areas in trade and highly efficient logistics could be further strengthened.
Economic rescue program one minority government
Takaichi must be given credit for the fact that as the head of a minority government she cannot do whatever she wants. Some of the tax and monetary gifts were included in the economic stimulus package due to pressure from the opposition. The LDP chairwoman also has nothing to do with US President Donald Trump’s tariff policy, which is putting a strain on Japan’s economy.
The primary goal of this expansive economic policy seems to be to protect the domestic market as best as possible – from attacks from the USA and China.
Outlook for the future uncertain
The interesting question will be what Japan’s economic policy will look like once the money from the current economic stimulus package has been used up. Maybe a look at Shinzo Abe’s concept will help: He further developed his “Abenomics” with a focus on growth through productivity, digitalization and innovation. Families were supported, the welfare state was stabilized and employment for older people was increased.
However, this did not become a successful model. The high debt ratio and demographic problems remained unresolved. Is this a suitable role model for Sanae Takaichi?
