Japan seeks approval for $141B economic stimulus package

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The Japanese government is seeking approval for a JPY21.9 trillion (US$141 billion) economic stimulus package before the end of the year. It’s likely to include energy subsidies and tax relief across several sectors, including for digital asset users. New Prime Minister Shigeru Ishiba must gain support from opposition party members in the legislature to pass any new bills. 

Raising the income tax threshold is a big priority. Currently, those earning JPY1.03 million (~$6,650) a year or under pay no income tax, and the opposition would prefer it to be JPY1.78 million (~$11,500). Japan is also keen to retain its status as a technological and industrial power, so newer tech industries like artificial intelligence (AI) and blockchain will receive some attention.

Some background is necessary here. At this point, the Japanese government is likely looking for ways to make itself more appealing to voters. The ruling Liberal Democratic Party (LDP) has formed a government in every election (except two) since World War II, but failed to achieve a majority in a snap general election last month. With its approval rating at historic lows and now as a minority government needing votes from opposition parties to pass any legislation, it’s the perfect moment to release policies with a more populist edge.

A primary concern among the Japanese is the rising cost of living, and Ishiba campaigned by promising to do something about it. Low wages, fewer jobs, high energy costs, and the reappearance of inflation are common gripes in daily conversation. 

Tax reform is high on the agenda, meaning “lower taxes” to most voting demographics.

That may sound easy to fix, but, like most developed countries, Japan also has a problem with its debt-to-GDP ratio. In fact, it has the world’s highest by far at 264%. That’s a hair-raising figure that usually warrants higher taxes and lower spending—neither of which are vote-gainers in a democracy. Japan’s sales/consumption tax, which only appeared in 1989, has increased from 3% to its current 10%, with two hikes in the past decade.

The new minority government has a lot of different groups it must please, and growing the public debt usually takes a back seat in these situations. That’s the nature of democracy in advanced economies.

Japan is one of the world’s biggest digital asset trading markets, and, again, like elsewhere, that market has grown to become an influential voting demographic. BTC and DOGE were featured in the recent U.S. presidential election campaign, and both assets have soared in price following Donald Trump’s victory, particularly with Elon Musk as his unofficial sidekick.

So far, Japanese governments have been very open-minded toward digital assets (usually called “virtual currencies”) and their use in retail and speculative trading. Back when government and central bank officials in other developed countries were looking for ways to discourage “cryptocurrencies,” Japan decided instead to grant them legal recognition as assets and allow an industry to grow—albeit with tight regulation and monitoring of exchanges.

That regulation isn’t going away, but taxes levied on acquiring digital assets may fall. They currently fall under a “miscellaneous” tax category, which sometimes reaches 50% or more. The Japanese opposition has suggested this should be a flat 20%.

At this point, though, it’s still uncertain whether digital asset taxes will get included in any reform package or if Ishiba can get his proposals through the legislature at all. However, the current political environment in Japan is one of compromise and the need for across-the-board appeal. The country also has a high-tech reputation to protect. In the short term, those could be grounds for optimism.

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