Japanese Prime Minister Shigeru Ishiba said on Monday that his government is prepared to compile an extra budget to soften the economic impact of US tariffs, signalling a possible shift toward fiscal stimulus amid mounting political and financial pressure.
The move comes as Ishiba’s minority coalition reels from a poor showing in last month’s upper house election and faces mounting calls from opposition parties to increase public spending and reduce Japan’s consumption tax.
“We will compile one if necessary, taking into account discussions with other parties,” Ishiba told parliament in response to questions from an opposition lawmaker about whether the government would consider a supplementary budget with tax cuts.
Should the stimulus package materialise, it would likely be tabled at an extraordinary parliamentary session expected in September. Analysts estimate the extra budget could reach as high as 10 trillion yen (approximately $67.7 billion), further straining Japan’s already precarious public finances.
The Japanese government has long relied on supplementary budgets to sustain economic growth, often at the expense of fiscal discipline. This has continued even as other major economies have scaled back crisis-mode spending following the COVID-19 pandemic.
Japan’s trade deal with US President Donald Trump, finalised last month, provided some relief by reducing tariffs on a range of goods, including automobiles. However, uncertainty remains over the timeline for cutting US tariffs on Japanese cars and auto parts from 25% to 15%—a key concern for Japan’s export-driven economy.
The pressure on Ishiba’s administration is growing not just from external trade challenges, but also from within. With inflation pushing up food prices and dampening consumer spending, opposition lawmakers have renewed calls to slash or eliminate Japan’s 10% sales tax (8% on food items) to support households.
However, Ishiba—known for his fiscal conservatism—has been wary of reducing the tax, which plays a vital role in financing social welfare for Japan’s ageing population.
Japan’s public debt currently stands at about 250% of its GDP, the highest among major developed economies. A large portion of this year’s record 115.5 trillion yen budget—nearly a quarter—is allocated to debt servicing. Analysts warn that borrowing costs are likely to rise further as the Bank of Japan considers raising interest rates.
As economic headwinds gather strength and political demands intensify, the Ishiba administration faces the difficult task of balancing stimulus with sustainability—an equation that could define Japan’s fiscal path in the months ahead.
Melissa Enoch
Follow us on:
