FX168 Financial News (Asia Pacific) report, according to the latest news from Japanese media cited by Bloomberg on Thursday, November 21, Japanese Prime Minister Shigeru Ishiba will announce an economic stimulus plan of 140 billion US dollars to address a series of challenges such as inflation and wage growth. Previously, Ishiba promised to alleviate Japan's tight cost of living issues during his campaign.

(Screenshot Source: Bloomberg)

According to Japan Broadcasting Corporation (NHK) report, the comprehensive plan will total 21.9 trillion yen, slightly higher than a series of measures last year.

NHK stated that the stimulus package will include 13.9 trillion yen in general account expenditures.

The report mentions that including private sector expenditures, the overall impact of this plan is estimated to be around 39 trillion yen.

(Screenshot Source: Bloomberg)

The plan is expected to be approved by the Japanese Cabinet on Friday. Earlier, Fumio Kishida had just returned from South America after attending a series of summit meetings.

Bloomberg pointed out that under the ruling coalition led by Fumio Kishida, which holds a minority of seats in parliament, the drafting of a comprehensive stimulus package and subsequent supplementary budget will be an important test of his policy implementation capabilities.

Nevertheless, these additional expenditures may increase Japan's debt burden.

According to an earlier draft plan seen by Bloomberg, the plan will include support for ongoing wage growth, cash payments to low-income households, and investments in the semiconductor and artificial intelligence sectors.

The Japanese government also stated that it will reinstate subsidies for natural gas and electricity bills starting from January next year to protect families from the impact of rising commodity prices.

The proposal will indicate that discussions on the annual tax reform for the next fiscal year will include raising the tax-exempt income cap from 1.03 million yen to 1.78 million yen, a reference proposed by the 'People's Democratic Party.' Kishida's minority government will need to make concessions to this small party to ensure the plan's funding is approved in parliament.

Keisuke Tsuruta, Senior Fixed Income Strategy Specialist at Mitsubishi UFJ Morgan Stanley Securities, said: "These figures are broadly within expectations. The key is the tax-exempt income cap and by how much it may be raised."

If the exemption limit is raised to 1.78 million yen as requested by the 'People's Democratic Party,' the Japanese Ministry of Finance has stated that this change could result in up to an 8 trillion yen tax revenue loss. A compromise to leave fewer gaps in government tax revenue seems more likely to be the outcome of the discussions.

According to data from the International Monetary Fund (IMF), Japan's general government debt has grown to over 250% of its economic size.

Due to market expectations that the Bank of Japan will raise interest rates again in December or January next year, Japan's debt-servicing costs are also expected to rise.