Basic Economic, Fiscal Policy: No Clear Strategy for Strengthening Economy

Editorial

17:19 JST, June 16, 2025

Prime Minister Shigeru Ishiba’s Cabinet has compiled its first comprehensive growth strategy, but it is hard to see a path to strengthening the Japanese economy. The Cabinet should work out the details on concrete measures so that companies boost investment.

The government has approved the Basic Policy on Economic and Fiscal Management and Reform, also known as the “big-boned policy,” at a Cabinet meeting. Besides placing wage increases at the core of the growth strategy, the policy has for the first time set a numerical target of “establishing a trend where real wages rise at about 1%,” in addition to a goal of higher nominal wages.

However, one cannot help but feel that something is lacking. As soon as discussions got down to the details, the only policies that stood out were those that were rehashed from the previous administration of former Prime Minister Fumio Kishida. The government listed measures such as expanding investment in decarbonization and digitalization and support for artificial intelligence, cutting-edge semiconductors and emerging companies, but there was little that was new.

Japan is attempting to shift from a cost-cutting economy that sells inexpensive products by keeping labor costs down to a growth-oriented economy where wages and investment both rise.

However, wage increases have not kept pace with inflation, and real wages have been in a long decline, since the spring of 2022, so there has been a failure to achieve stable growth. Growth strategies have yet to produce tangible results. Households continue to struggle with high prices, and there is no sign Japan will be able to shed its sense of stagnation.

Strategies for driving investment are likely key to strengthening the economy. Japanese firms’ reserves have grown to about ¥600 trillion, which should be more than enough for investing.

In its basic policy, the government sets new targets for domestic investment by the public and private sectors, hoping to grow the total to ¥135 trillion in fiscal 2030 and ¥200 trillion in fiscal 2040.

The global economy is undergoing a period of major change, and it is time to formulate investment strategies. U.S. President Donald Trump’s administration is moving ahead with protectionism through high tariffs, aiming to bring back manufacturing to the country, and this has put pressure on Japanese companies to rebuild their supply chains.

How can Japan develop high-value-added factories in key industries such as the automotive and semiconductor and facilities such as data centers in a way that protects employment and leads to high growth? Close cooperation between the government and the private sector will be essential.

In 2023, Japan’s nominal gross domestic product fell behind Germany, making it the fourth largest economy in the world. Some predict that Japan will be overtaken by India in the not-so-distant future.

The decline in national power has led to excessive weakening of the yen, reducing nominal GDP in dollar terms. The weak yen is also contributing to inflation, and causing the Japanese economy to stagnate.

The nominal GDP is around ¥600 trillion at present, but the basic policy says that if the nation’s economic growth continues to top 1% in real terms, “a quadrillion-yen economy will come onto the horizon around 2040.” Unless the Ishiba administration revises its growth strategy, it will probably fail to achieve even this goal.

(From The Yomiuri Shimbun, June 16, 2025)