Japan May Add Extra Budget to Offset U.S. Tariff Impact

Japanese Prime Minister Shigeru Ishiba has signaled readiness to compile an extra budget to cushion the economic blow from newly imposed U.S. tariffs, as political and economic pressures mount.

Following a recent upper house election defeat, Ishiba’s minority coalition is facing demands from opposition parties to increase government spending and consider reducing Japan’s 10 perent sales tax. If pursued, the additional budget—estimated by analysts to be around ¥10 trillion ($67.68 billion)—would be tabled during an extraordinary parliamentary session likely in September. The move aims to soften the impact on Japan’s export-driven economy, particularly as uncertainty lingers over when U.S. tariffs on Japanese automobiles and auto parts will be reduced from 25 percent to 15 percent.

Key Highlights

Japan may issue a ¥10 trillion extra budget to counter U.S. tariff effects
Sales tax cut demands grow amid inflation and political losses
National debt already at 250 percent of GDP, highest among developed nations

"We will compile one if necessary, taking into account discussions with other parties," Ishiba told parliament when asked by an opposition lawmaker whether the government would compile an extra budget that includes tax cuts.

This potential stimulus comes despite Japan already operating under a record ¥115.5 trillion budget for FY2025, of which nearly a quarter is allocated to debt servicing. Analysts warn that further deficit financing could worsen Japan's fiscal position, especially as the Bank of Japan considers more interest rate hikes.

The opposition is also calling for slashing the sales tax, especially as rising food costs strain household consumption. However, Ishiba, known for his fiscal conservatism, remains hesitant to cut a tax that funds vital social welfare for Japan’s rapidly ageing population.

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Japan’s national debt is already at 250 percent of GDP—the highest among major economies—raising concerns about long-term sustainability as the government considers yet another round of economic stimulus.