'Debt Ratio 250%' Japan to Spend 280 Trillion Won... Kishida Following UK Truss's Footsteps

LDP Demands 4 Trillion Yen Increase
Plan to Reduce Electricity, Gas, and Fuel Costs
Mostly Funded by Issuing Deficit Bonds
Japanese Media "Serious Concerns Over Finances"

Japanese Prime Minister Fumio Kishida. [Image source=AP Yonhap News]

[Asia Economy Reporter Lee Ji-eun] According to NHK's report on the 27th, the Japanese government is expected to inject a budget exceeding 29 trillion yen (approximately 280 trillion won) into a comprehensive economic package to stabilize livelihoods and respond to rising prices. Amid the recent withdrawal of the UK's 72 trillion won tax cut plan due to surging bond yields and exchange rates, concerns are growing over the fiscal burden and market impact as Japan embarks on large-scale monetary easing.

According to NHK, the Japanese government has finalized the contents of the comprehensive economic measures, including easing the burden of electricity and gas bills, and has entered the final coordination stage to determine the size of the supplementary budget to be used.

Previously, the Japanese government proposed a budget of 25.1 trillion yen for the comprehensive economic policy, but it is known to be adjusting the budget upwards to nearly 30 trillion yen. NHK reported, "Within the ruling Liberal Democratic Party, there have been criticisms that the 25 trillion yen budget is insufficient given the recent economic situation."

Through this comprehensive economic policy, the Japanese government plans to subsidize electricity bills charged to households from January next year by 7 yen per kilowatt-hour (kWh) and support 10% of gas fees. It is expected that Japanese households will receive benefits reducing fuel and electricity costs by 45,000 yen per household until September.

In addition, to support pregnancy and childbirth, economic support worth 100,000 yen will be provided to households with children aged 0 to 2. The budget for raising wages in small and medium-sized enterprises and investing in human resources over five years will also be increased to 1 trillion yen.

However, as the UK, which previously announced a tax cut plan, struggled with a collective sell-off of currency and bonds, concerns are rising that Japan may also face side effects from large-scale stimulus policies. After former Prime Minister Liz Truss announced the tax cut plan last September, the UK’s two-year government bond yield surpassed 4.6%, marking the highest level since the 2008 global financial crisis.

Experts pointed out that the main cause of market distrust was the announcement of the tax cut plan without a plan for the scale of revenue reduction, while the UK’s national debt ratio reached 154.1% of GDP in the first quarter.

The problem is that Japan’s national debt ratio exceeds that of the UK. Currently, Japan’s national debt totals 1,225 trillion yen (1,220 trillion won), amounting to 252.6% of GDP. In this situation, it is known that the Japanese government plans to cover a significant portion of the supplementary budget by issuing deficit-covering bonds and increasing contingency funds.

Japanese media also expressed concerns about the government’s large-scale economic stimulus. The Nihon Keizai Shimbun stated on the 26th, "The government’s extensive populist policies are causing serious concerns about fiscal health," and added, "Japanese people need to recognize that if the nation’s finances worsen, taxes will increase and the burden will fall on individuals, and they should pressure the government with a long-term perspective."