Japan Approves $135 Billion Stimulus Package to Ease Inflation and Strengthen Economy

Japan’s cabinet, under Prime Minister Sanae Takaichi, has approved a massive stimulus package valued at ¥21.3 trillion (approximately $135 billion) aimed at alleviating inflationary pressures and supporting economic growth. This marks the country’s largest round of extra spending since the COVID-19 pandemic, reflecting the government’s urgent response to growing voter frustration over rising living costs.

The heart of the stimulus plan includes ¥17.7 trillion in general account spending, a 27% increase from the previous year. The largest share, ¥11.7 trillion, is earmarked for price relief measures such as ¥7,000 subsidies for gas and electricity bills per household over three months, a one-time ¥20,000 cash handout per child, and ¥2 trillion to assist regional governments. Other initiatives include abolishing the gasoline tax and raising the income tax-free threshold.

Defense and diplomatic capabilities also see a significant boost, with ¥1.7 trillion allocated to strengthen these sectors. This includes a ¥1.1 trillion funding increase to raise defense spending to 2% of GDP—two years ahead of schedule—as well as ¥7.2 trillion for crisis management investments. The package further reserves ¥700 billion for natural disaster damage and wildlife-related incidents.

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Despite stirring concern among investors over the fiscal impact and contributing to the yen’s depreciation to a decade low, Prime Minister Takaichi emphasized the package’s focus on protecting livelihoods and sustaining a strong economy. The government projects that this stimulus will increase Japan’s GDP by approximately 1.4 percentage points annually over the next three years, offering a much-needed boost amid a recent economic contraction and international trade tensions.

With inflation running above the Bank of Japan’s 2% target for the longest stretch since 1992, the stimulus reflects a decisive policy shift toward expansionary fiscal measures. It also includes investment plans in critical future sectors such as shipbuilding, quantum technology, and critical minerals, aiming to secure Japan’s economic resilience in a rapidly evolving global landscape.

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