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The highly anticipated Japan stimulus package is on its path to progress. One day after outlining the package that includes tax breaks to boost consumption, Japanese Prime Minister Fumio Kishida instructed his cabinet today to put together the package by the end of October. The stimulus measures aim to “realize a virtuous economic cycle of capital investment, wage growth and investment in people,” said Kishida.
The government has outlined five major pillars for the stimulus: Tackling inflation; boosting wage and income gains; spurring domestic investment; spurring social reforms; and enhancing public safety and security.
Drive growth for the semiconductor, biotechnology, and manufacturing sector
The Japanese government also wants to focus on the growth of industries like semiconductors, batteries, and biotechnology. Kishida considers semiconductors as a strategic investment that has the potential to bring growth to rural areas and boost wages. The government also cited tax breaks on income from patents and other intellectual property. It is expected that the stimulus plan will also facilitate businesses to offer stock options with tax advantages to workers outside so that startups can attract a skilled workforce.
In the past, the Japanese government has already taken measures to boost domestic chip production, currently catering to the supply of manufacturing equipment such as deep ultraviolet lithography (DUV) machines.
For larger enterprises, the government is planning to offer corporate tax credits with timelines extending five to 10 years beyond the initial investment, based on production and sales. This would help lower the barriers to entry and reduce the long-term risks involved in such projects.
Japan stimulus package: Focus on inflation, wages, yen
Japan’s wage subsidy program is set to expire at the end of fiscal 2023, which the government plans to extend as well and expand its scope through the upcoming stimulus program. One of the proposals would allow small and mid-sized companies to carry tax benefits. The government now also anticipates bringing manufacturing facilities to regions beyond big urban centers, to create local jobs and lift wages in related industries.
In terms of inflation, Japan is planning to extend the program to mitigate rising prices for gasoline, electricity, and gas into next year. This can also be seen as a temporary subsidy. “There are signs that cost-push inflation is beginning to peak in Japan, and inflation should slow in the second half of 2023,” said Nikko Asset Management.
Prime Minister Kishida also warned investors trying to sell off the yen. He indicated that he would closely watch currency moves. “It’s important for currencies to move stably reflecting fundamentals,” Kishida said in his rare remarks on the foreign exchange market. “Excessive volatility is undesirable.” The government considers that a weak yen is conducive to boosting investment in Japan.
