Japan Unveils Comprehensive Strategy to Boost Economy

 

Recently, the price of rice in Japan has continued to rise, putting significant pressure on people's lives. The photo shows rice on the shelves of a chain supermarket in Tokyo, Japan. Taken by Xinhua News Agency reporter Zhong Ya.

On November 22nd, the Japanese government formulated a comprehensive economic policy that includes subsidies for low-income families, resumption of energy cost price subsidies, increased support for the fields of artificial intelligence and semiconductors, and strengthening of disaster prevention, mitigation, and post-disaster reconstruction.

The data released by the Japanese government shows that the fiscal expenditure scale of this comprehensive economic policy is 21.9 trillion yen, of which the general account expenditure as part of the supplementary budget for fiscal year 2024 is about 13.9 trillion yen. This supplementary budget will be submitted to the Japanese Diet for a vote in early December. If national and local governments, as well as social capital, are included, the total scale of the comprehensive economic policy will reach 39 trillion yen.

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The core objectives of this comprehensive economic policy are threefold. The first is to achieve economic growth, the second is to effectively respond to rising prices, and the third is to ensure the peace of mind and safety of the people. In response to high prices, the Japanese government will resume the electricity and gas bill subsidy system, which ended at the end of October this year, from January to March next year. The gasoline subsidy system, originally scheduled to expire within the year, will also be extended to March 2025, with a phased reduction in subsidy amounts starting from December 2024. In addition, Japan will issue a subsidy of 30,000 yen to low-income families who do not need to pay resident tax, with an additional 20,000 yen for each child raised by child-rearing families. In terms of social security for the people, the main focus is on using funds for post-disaster reconstruction work following earthquakes and heavy rain disasters on the Noto Peninsula, as well as improving the environment of evacuation shelters and other disaster prevention and mitigation measures.

This comprehensive economic policy clearly supports the artificial intelligence and semiconductor industries, establishing a framework for strengthening the foundation of artificial intelligence and semiconductor industries. It plans to provide more than 10 trillion yen in public support to artificial intelligence and semiconductor-related industries by 2030, of which 6 trillion yen will be invested in subsidies and entrusted fees to support the research and development of next-generation semiconductors. In terms of promoting mass production, more than 4 trillion yen in support will be provided through direct investment and debt guarantees. The Japanese government hopes to lead with long-term government support to boost private investment confidence, filling the financial gap in the domestic production and mass production of cutting-edge semiconductors.

Some argue that the precision of the Japanese government's comprehensive economic policy is insufficient, and its effectiveness in promoting economic growth and improving people's lives remains to be seen.

Firstly, there is doubt about the rationality of energy subsidies. The planned electricity subsidy standards in this economic policy are 2.5 yen per kilowatt-hour for January and February, and 1.3 yen for March. Some argue that compared to the 4.0 yen per kilowatt-hour subsidy during the Kishida cabinet in August and September, this subsidy is relatively "lacking in determination" and appears somewhat stingy. In addition, the target price for gasoline subsidies has been raised from 175 yen per liter to 185 yen per liter, and the intensity of cost subsidies in the energy field has been reduced. There are also views that the Japanese government's funds for gasoline, electricity, gas, and other energy subsidies have reached 11 trillion yen, but this "indiscriminate" subsidy method also benefits high-income individuals and businesses. If this part of the subsidy is used for low-income families, it can better solve actual problems. Moreover, repeated energy subsidies increase the financial burden on the government, distort the effective allocation of resources by the price mechanism, and may change people's energy consumption preferences, which is not conducive to the realization of decarbonization policies.

Secondly, the target of family subsidies is not precise enough. Some argue that the target of this family subsidy is families who do not need to pay resident tax, most of which are elderly families relying on pension income, while some elderly families have low income but high savings assets. There are also many low-income working families who really need subsidies but cannot enjoy them because they have paid taxes and social security fees. Identifying family difficulties based on whether they pay resident tax is not precise.

Thirdly, the economic stimulus effect is limited. Some Japanese economic circles estimate that the total subsidy for families who do not need to pay resident tax will exceed 440 billion yen, but only about 25% of this one-time subsidy will be used for consumption, which can only drive the growth of Gross Domestic Product (GDP) by about 0.02% per year. With subsidies in energy, semiconductors, natural disasters, and other fields, the total effect on GDP over a year is about 1.0%. Despite the expansion of the fund scale of this comprehensive economic policy compared to last year, the driving effect on GDP has not been improved.

In addition, the effect of large-scale support for the artificial intelligence and semiconductor fields is unclear. The Japanese government will submit a bill to the Diet next year that allows the government to invest in domestic semiconductor companies such as Rapidus. The Japanese government has decided to provide up to 920 billion yen in aid to Rapidus. However, under the trend of expanding support policies, the technical and market prospects for the domestic production and mass production of cutting-edge semiconductors in Japan are still unknown. If they cannot form a comparative advantage in cost with mature products, their investment returns will be difficult to guarantee. Due to various uncertainties, whether it can effectively boost private financing confidence remains to be seen. If the government's policy is not effective, Japan's cutting-edge semiconductors may fall into a funding crisis.

As a minority ruling party, the Liberal Democratic Party must currently accept the policy requirements of the People's Democratic Party in order to pass various bills in the Diet. Although not specifically involved in this comprehensive economic policy, the People's Democratic Party's advocacy for breaking the "1.03 million yen barrier," raising the income tax deduction standard, and reducing gasoline tax, among other policy requirements, has entered the specific discussion stage and is very likely to become a reality in next year's tax reform. Some argue that the policies of the People's Democratic Party are highly dependent on government fiscal expenditure, but how to ensure fiscal sources will become a major issue faced by the Japanese government.