Japan’s Cabinet Approves Stimulus in Show of Progress for Ishiba
(Bloomberg) -- Japanese Prime Minister Shigeru Ishiba’s cabinet approved a stimulus package that’s slightly bigger than last year’s, as he followed up on a pledge to ramp up support for households and businesses struggling to cope with higher costs.
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The stimulus lays out fiscal spending of ¥21.9 trillion ($140 billion) on measures to support sustained wage gains and cash handouts for low-income households, subsidies for gas and electricity bills, and investment into the semiconductor and artificial intelligence sector, according to the Cabinet Office on Friday.
“The most important thing is to raise wages for all generations,” Ishiba told reporters earlier in the day. “This needs to happen now and in the future.”
Delivering on a promise to provide a bigger spending package than last year was a key checkbox that Ishiba needed to tick as he looks to shore up his leadership of a minority government.
Ishiba struck a deal this week with the Democratic Party for the People to shore up enough support for his stimulus plan. That deal provides Ishiba with a template for sustaining his Liberal Democratic party-led minority government ahead of other looming challenges, including an annual budget for the next fiscal year.
After losing its majority in a lower house election on Oct. 27, the ruling coalition needs the votes of at least one of the three largest opposition parties to pass legislation in parliament.
“It could go horribly wrong at any point for the LDP if the coalition loses the DPP or other alternatives,” said Rintaro Nishimura, a Japan associate at The Asia Group, an advisory firm.
Of the measures laid out in the package, around ¥10.4 trillion of fiscal spending will be earmarked for economic growth, ¥4.6 trillion for price-relief measures, and ¥6.9 trillion for other economic, social and security measures including disaster management.
The overall working size of the package will reach around ¥39 trillion, according to the cabinet office, a figure that relies on projected spending from the private sector. The actual cost of the measures is closer to ¥13.9 trillion, in line with a figure seen earlier by Bloomberg in a draft of the package.
The agreement on the package puts Ishiba on a firmer footing after recent opinion polls showed underwhelming public support for his cabinet. A survey published by public broadcaster NHK this week showed public approval at 41% and disapproval at 37%, relatively poor numbers for a new administration. Ishiba launched his new cabinet lineup on Nov. 11.
Still, the approved package shows the new reality for the ruling party and the difficulties Ishiba faces going forward. The opposition parties now have some leverage to try and get their policy goals implemented, an advantage the DPP used to get the coalition to agree to its demand of raising the cap on tax-free income and including a reference to that in the package in return for its backing for the stimulus.
The prime minister needs to demonstrate he can push ahead with policy and political funding reforms if he wants to ensure he stays on as leader heading into another national election next summer.
Ishiba’s desire to reach a decision this year on when to raise taxes to secure funds for planned increases in defense spending is another test he faces. None of the main opposition parties have expressed support for such tax hikes.
“The LDP needs to get its policies right in order to regain the public’s trust, as voters are most concerned about the economy and political reforms,” said Yu Uchiyama, professor of Japanese politics at the University of Tokyo. “Otherwise, it’s possible the ruling coalition will also lose its majority in the upper house election, and that would be a big problem.”
Ishiba returned to Japan this week after attending a G-20 leaders meeting in Brazil and an Asia Pacific Economic Cooperation summit in Peru. He missed the leaders “family photo” at APEC and faced some criticism from the public in Japan for not standing up to greet other leaders.
Still, Ishiba held a rare Japan-China summit meeting with President Xi Jinping that appeared to help with a recent thawing of frosty ties. Among positive developments, China will re-introduce short-term visa exemptions for Japanese visitors, its Foreign Affairs Ministry said Friday.
Ishiba had also hoped to meet with President-elect Donald Trump en route back from South America but was told Trump wasn’t planning to meet world leaders ahead of his inauguration in January.
Nishimura of the Asia Group said the fundamental question for the LDP is whether Ishiba is the right leader to take the party into the election next July.
“He will need a few big wins diplomatically and politically to secure that confidence,” Nishimura said.
(Updates with more background, developments.)
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