Japan's individual income tax threshold will be significantly raised from the current $6,640 to $11,500. Analysts believe that this measure will inject more disposable income into the Japanese economy, easing long-term pressures such as population decline and aging. However, there are also opponents who believe that this is a reckless fiscal expansion, which may exacerbate income inequality, lead to rapid inflation, and possibly pave the way for a rate hike in December.
Japan significantly raises the individual income tax threshold, with a focus on wage growth by Prime Minister Shizo Abe. Will inflation soar?
On Friday, November 22, Japan's Prime Minister Shizo Abe government approved an economic stimulus plan of 39 trillion yen (approximately $250 billion), with about one-third coming from government account expenditures and the remainder expected to be driven by private sector spending.
This plan supports the AI and semiconductor industries, providing cash subsidies to low-income families, offering energy assistance to help households cope with rising prices, and bringing a sense of 'happiness' to Japanese residents.
More importantly, according to the proposal, Japan's individual income tax threshold will be significantly increased from the current $6,640 to $11,500. Analysts believe that this measure will encourage more people, especially women, to extend their working hours, thereby increasing income and injecting more discretionary income into the Japanese economy, easing long-term pressures such as population decline and aging.
However, this proposal has sparked intense debates within the ruling coalition - under the new threshold of personal income tax, Japan's government revenue is expected to decrease by about $45 billion. Critics argue that this is a reckless fiscal expansion that may exacerbate income inequality and could lead to rapid inflation growth.
Moody's Analytics senior economist Stefan Angrick said that raising the personal income tax collection threshold should boost consumer spending and create demand-driven price pressures. However, the timing of this policy is not ideal, as the supply-driven inflation wave has not completely subsided.
However, this aligns with Shizo Abe's style - Shizo Abe clearly prioritizes wage growth in his government work. As Japan gradually emerges from decades of deflation, he seeks to solidify the benign cycle of rising incomes and moderate inflation. Earlier, Shizo Abe stated:
Increasing the wage levels of all age groups is the most important thing.
Since the beginning of this year, Japanese companies have increased wages by an average of 5.1%, marking the largest increase in 30 years. A recent survey by Reuters shows that 51% of companies plan to raise wages by at least 3% in this fiscal year, compared to only 37% during the same period last year.
Currently, the market generally expects the Bank of Japan to raise interest rates by 25 basis points to 0.5% in December. UBS Group's Chief Economist for Japan, Masamichi Adachi, stated:
The only condition needed for the Bank of Japan to raise interest rates should be market stability... We expect that there will be no significant turbulence in the market before December 19th.
