Japan Pledges Continued Support as Inflation and Tariffs Bite

Japan's parliament on Friday approved a JPY 21.3 trillion economic stimulus package on Friday to support the economy amid persistent inflation and the impact of U.S. tariffs. The plan allocates JPY 11.7 trillion, including tax breaks, to ease the burden of rising prices, while JPY 7.2 trillion will fund investments in strategic sectors such as semiconductors, artificial intelligence, and shipbuilding. To finance the measures, the government will compile a supplementary budget of JPY 17.7 trillion from its general account, surpassing the roughly JPY 13.9 trillion extra budget for fiscal 2024 and marking a new post-pandemic high. Lawmakers aim to finalize the supplementary budget later this month.

The Japanese government is expected to finalise an economic stimulus package on November 21, marking Prime Minister Sanae Takaichi’s first major policy initiative since taking office last month. According to a draft outline seen by Reuters, the package will urge the Bank of Japan to focus on achieving strong economic growth accompanied by stable prices, underscoring Takaichi’s preference for keeping interest rates low to support a fragile recovery. “It is extremely important for monetary policy to be guided in a way that achieves strong economic growth and price stability,” the draft said. The plan will include measures to ease the burden of rising living costs, boost crisis management and growth investment, and strengthen Japan’s defence capabilities. The government also pledged to coordinate closely with the BoJ to prevent a return to deflation and sustain growth. The Nikkei reported the package will feature tax cuts targeting investment in 17 key industries.

Japan’s new economics minister, Minoru Kiuchi, vowed to prop up the economy amid higher U.S. tariffs and domestic inflation. “It is undeniable that the recovery in personal consumption still lacks strength amid continued inflation,” he said Wednesday, adding that “until real wages rise strongly enough, the government must continue to firmly support the economy". Kiuchi emphasized that the government will monitor U.S. trade policy and assist affected companies, including financial aid for small firms. On monetary policy, he said the government will work closely with the Bank of Japan to achieve stable 2% inflation, stressing that “it is very important for the BoJ to steer monetary policy to realize both strong economic growth and price stability.” The comments come as new Prime Minister Sanae Takaichi orders her cabinet to prepare an economic stimulus package to ease household cost burdens.