Japan Poised to Draft Extra Budget to Offset US Tariff Impact: PM

• PM Shigeru Ishiba signals readiness for an additional stimulus budget.
• US-Japan trade deal eases some tariffs, but auto tariffs remain high.
• Japan’s debt burden grows as opposition demands sales tax cuts.

Japanese Prime Minister Shigeru Ishiba announced that the government is prepared to create an additional budget to mitigate the economic impact of US tariffs, a step that would further burden the nation's already worsening financial situation.

Following a sharp loss in the July Upper House election, Mr. Ishiba's minority coalition faces pressure to respond to opposition parties' calls for increased spending and a reduction in Japan's sales tax.

“We will compile one if necessary, taking into account discussions with other parties,” Mr Ishiba informed Parliament when questioned by an opposition member if the government would create an additional budget that features tax reductions.

Japan’s trade agreement made with US President Donald Trump in July reduces US tariffs on imports of products, including its core automobiles, alleviating the strain on the export-dependent economy.

However, there is no certainty regarding when US tariffs on automobiles and auto parts will be reduced to 15 percent from the existing 25 percent, obscuring the outlook for Japan's delicate recovery. In Japan, creating an additional budget has turned into a routine practice as politicians advocate for heightened expenditure to bolster the economy, maintaining a relaxed fiscal policy despite other nations retracting emergency spending following the Covid-19 pandemic.

Mr. Ishiba has not provided any remarks on the potential scale of an additional budget, but certain analysts predict it might be approximately 10 trillion yen (S$87.1 billion), necessitating extra debt issuance.

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The additional budget would be in addition to a historic 115.5 trillion yen budget for the ongoing fiscal year. Out of the total, 24.5 percent is allocated to servicing debt. Analysts predict that these deficit funding costs will likely increase further as the Bank of Japan considers additional interest rate hikes.

 Due to increasing food prices affecting consumption, opposition parties are advocating for cutting or removing Japan's sales tax rate, currently at 10 percent, except for food items, which are taxed at 8 percent.

Mr. Ishiba, seen as a fiscal hawk, has approached the idea of reducing the sales tax with caution, as it finances social welfare expenses for an aging population.

A surge of substantial spending programs and escalating social welfare expenses for a quickly ageing population have resulted in Japan accumulating a debt that is 250 percent of its economy – the largest among major economies. REUTERS