On May 26, Prime Minister Kishida instructed the relevant ministers to materialize new economic measures centered on responding to rising prices, and will begin full-scale deliberations with the aim of formulating them by the end of next month. In addition to the effectiveness of measures, including tax cuts, the timing of submission of supporting supplementary budget bills to the Diet will also be a focus.
With regard to the new economic measures, Prime Minister Kishida announced on May 25 that the policy will consist of five pillars: measures to counter high prices, achieve sustainable wage increases, and promote domestic investment.
Prime Minister Kishida stated, "The economic situation is improving after overcoming the three difficult years of the coronavirus pandemic, and now that the people are suffering from high prices, we will appropriately return the increase in tax revenue, which is the result of growth."
On May 5, we presented this view to the relevant ministers and instructed them to materialize countermeasures, and we will begin full-scale discussions with the aim of formulating them by the end of next month.
As specific measures, in addition to strengthening tax breaks for companies working to raise wages and new tax breaks to encourage domestic investment in strategic fields such as semiconductors, measures to reduce the burden on households are expected to be considered, including whether the subsidy system for electricity and gas charges will be continued next year and beyond.
On the other hand, with regard to the supplementary budget bill that will serve as a backing, Prime Minister Kishida indicated that he would start formulating the supplementary budget promptly after formulating the countermeasures, but he did not specify when it would be submitted to the Diet, and some ruling and opposition parties are of the view that they may be considering dissolving the House of Representatives this autumn.
Furthermore, with regard to the budget proposal, in response to voices calling for large-scale fiscal expenditure necessary, there are opinions that fiscal discipline should not be relaxed based on scale.
For this reason, future studies will focus not only on the effectiveness of the measures, but also on the size of the budget and the timing of submission to the Diet.
Calls for large-scale fiscal spending and concerns about prolonged inflation
With regard to economic measures, there are calls for large-scale fiscal spending within the government and ruling parties, such as LDP Secretary-General Seko indicating that measures on the scale of 15 trillion to 20 trillion yen should be taken, including measures to support investment and support for low-income earners.
On the other hand, there is an opinion that scale is not the norm, as seen in Finance Minister Suzuki's statement at a press conference on March 22 that "the scale will be determined as a result of the accumulation of truly necessary and effective policies."
Since the spread of the novel coronavirus, the government has repeatedly compiled a large-scale supplementary budget of 20 trillion yen to 30 trillion yen.
The Basic Policy compiled in June states that fiscal policy will focus on raising the potential growth rate and conduct sustainable economic and fiscal management, stating that "the expenditure structure will be restored to normal times and efforts will be made to ensure that fiscal expenditures in emergencies are not prolonged or permanent than necessary."
Ryutaro Kono, chief economist at BNP Paribas Securities, who is an expert on economic and fiscal policy Japan said that the estimated output gap, which indicates the difference between the supply and supply capacity of the economy, has turned negative to positive, making prices likely to rise. The reason why the effects of the yen's depreciation inflation, which should have been only a temporary effect, have been prolonged is that the output gap in Japan has already tightened. If the government conducts large-scale fiscal policy in order to mitigate the impact of high prices on people's lives, it may further tighten the output gap and prolong high inflation."