Japan’s ¥21 Trillion Stimulus: A Costly Detour from Real Reform

 

Japan’s ¥21 Trillion Stimulus: A Costly Detour from Real Reform

 

Japan’s government has unveiled a ¥21.3 trillion economic package aimed at easing the burden of persistent inflation. Yet despite its scale, the measures are unlikely to deliver meaningful relief to households. The problem lies not in the size of the spending, but in its design — temporary subsidies and one‑off handouts that fail to address the structural drivers of rising prices.

 

The centerpiece is a cash payment of ¥20,000 per child under 18. With no income limits, wealthy families benefit alongside the poor, while single adults and low‑income households without children are excluded. Local governments will receive ¥2 trillion to issue rice coupons or electronic vouchers, but these are quickly exhausted, leaving families once again exposed to inflated food prices. Energy subsidies, scheduled for January to March, will shave about ¥7,000 off household bills — a modest, short‑lived reprieve.

 

Such measures are palliative at best. The root cause of Japan’s inflation is the chronic yen weakness that began under Abenomics, which raised import costs across the board. Unless the yen is stabilized, fiscal giveaways will only postpone the pain.

 

Markets are already signaling alarm. Long‑term interest rates recently surged to 1.8 percent, a 17‑year high, as investors questioned the sustainability of ballooning deficits. Rising yields erode confidence in government bonds, risk further yen depreciation, and threaten to trap Japan in a vicious cycle: fiscal stimulus intended to curb inflation ends up fueling it.

 

The supplementary budget alone adds ¥17.7 trillion in spending, surpassing last year’s package under Prime Minister Shigeru Ishiba. More deficit bonds will inflate debt‑servicing costs, squeezing future budgets and undermining fiscal credibility.

 

What citizens demand is not another round of coupons or subsidies, but genuine relief from household pain. That requires monetary, not fiscal, adjustment. The Bank of Japan must resume rate hikes, gradually lifting policy rates to a level positive in real terms above the 2 percent inflation target. To offset the risks of higher rates and a stronger yen, a permanent cut in the consumption tax to 5 percent — ultimately moving toward abolition — would provide households with lasting support while restoring confidence in Japan’s economic management.

 

The Tokyo Shimbun deserves credit for being the lone major newspaper to highlight the need for BOJ rate hikes. While most commentary remains fixated on fiscal expansion, the editorial rightly identifies monetary policy as the decisive lever.

 

Japan’s leaders face a stark choice. They can continue down the path of ever‑larger stimulus packages, eroding fiscal trust and perpetuating yen weakness. Or they can confront the structural problem head‑on: stabilize the currency, restore monetary discipline, and deliver durable relief to households. The latter course is harder, but it is the only one that promises lasting stability.

Tomo Nakamaru