Promise of Growth Economy Must Come with Specific Targets

Japan Forward

18-06-2025

The most important duty of the Shigeru Ishiba Cabinet is to get the Japanese economy back on track. Achieving robust growth should be its top priority. But it faces strong headwinds. Daily living conditions are deteriorating due to rising prices. Meanwhile, there is widespread business uncertainty due to the Trump tariffs.
In this climate, the Cabinet adopted the Basic Policy on Economic and Fiscal Management and Reform on June 13. Its centerpiece is a call for wage increases, which, more than anything else, are seen as the key to this growth strategy.
One goal is to defuse calls from opposition parties and the general public for tax cuts, including for the consumption tax. Overtly, the plan advocates for policies to increase wages over tax-cutting measures.
To create a self-sustaining economy led by private demand, a new push is needed that reinforces the momentum for wage increases. Momentum for this has begun spreading to small and medium-sized enterprises. However, it needs to reach the degree where the country finally enjoys an economy in which consumers are no longer at the mercy of rising prices.
In other words, we should aim for a growth-type economy in which rising wages provide the spark for consumption. In turn, that will spur growing corporate earnings and investment. Customers at a Tokyo supermarket look at the price tags of fruit.
Such a course is perfectly reasonable. But whether the hoped-for increases in take-home pay will materialize is another matter. The idea is to entrench wage increases of about 1% above the rate of inflation over a five-year period. However, there is a turbulent economic atmosphere at both home and abroad at this time. Therefore, it is uncertain whether the momentum for wage increases at smaller companies can be maintained.
Of course, everything cannot just be left to the private sector. Among other things, the outline calls for price shifting and the optimization of transactions designed to improve corporate productivity. It also includes measures to support wage increases, such as an increase in official prices for services like medical and nursing care. Nevertheless, these ideas are not really new.
If the national government does not establish specific targets that can lead to concrete results, the promised "growth economy" will disappoint.
Another notable element in the government's Basic Policy is the form that fiscal policy will take. It is retreating from its previous vow to get the central and local governments' combined primary balance into the black during FY2026. Instead, it's only promising to achieve that goal "as soon as possible, sometime during FY2026 or 27." The change resulted from economic measures implemented in the autumn of 2024, which increased government spending.
Of course, the government should not become so fixated on targets that it hesitates to spend when it is really needed. However, it must recognize that fiscal demand will grow if it is to maintain social security and strengthen defense capabilities. Therefore, the government should not neglect its efforts to achieve its avowed targets.
We now find ourselves back in a world where interest rates matter. As a consequence, the environment is no longer very conducive to the issuance of government bonds. There is also a risk that interest rates will rise sharply if the market loses confidence in the Japanese government's fiscal management.
A House of Councillors election set for this summer is fast approaching. Therefore, there is mounting pressure on the ruling and opposition parties to raise spending. The politics of the measures candidates push must therefore be kept firmly in mind.
(Read the editorial i n Japanese .)
Author: Editorial Board, The Sankei Shimbun