The 13.9 Trillion Yen Question: What’s at Stake in Japan’s Extraordinary Diet Session?

The House of Representatives has its work cut out for them during the extraordinary session of the Diet starting from November 28th to December 21st. The LDP/Komeito coalition, with their dancing partners the Democratic Party for the People (DPP), are seeking to pass a supplementary 2024 budget to implement counter-inflation policies and spur growth in key sectors. Estimated to be a whopping 13.9 trillion yen (90 billion USD), with the total project scale including private sector spending to be about 39 trillion yen, this supplementary budget is even larger than FY2023’s supplementary budget (clocking in at 13.2 trillion yen/total project scale of 37.4 trillion yen). The budget has three main pillars:

1. Economic growth (e.g. 6 trillion yen will be allotted for R&D subsidies for semiconductors and other initiatives through FY2030);

2. Addressing inflation (e.g. subsidies for electricity and gas bills from January to March 2025, supporting low-income households will receive approx. 30,000 yen, with an additional 20,000 yen per child for households with children); and

3. Ensuring public safety and security (e.g. funds promoting disaster prevention, mitigation, and recovery, including for those affected by the Noto earthquake).

Included in the supplementary budget language is the DPP’s populist policy to raise the ‘1.03 million yen income ceiling’ income-tax threshold and to further discussions around relief in the gas tax (although the specifics of these details is still left for debate). A complete overhaul of the income-tax thresholds would require more in-depth analysis and discussion that the four week extraordinary session holds. The three parties have also begun deliberation on next year’s budget. The DPP has asked for a temporary relief in the consumption tax and other populist policies that may be a tough pill for the LDP to swallow.

How this supplementary budget impacts next year’s budget will also be something to keep a keen eye on. The previous government estimated that Japan would find itself with a budget surplus of 0.8 billion yen. This stimulus package, with reduced income sources, may jeopardize this plan. The ruling parties don’t have a lot of time for discussion, as the supplementary budget needs to be passed before the 21st of December.

We’ve already seen the outsized role the DPP has in budgetary discussions, but what about the other major opposition parties: namely the CDP and Nippon Ishin? The CDP, in theory, support the revision of the ‘1.03 million yen income ceiling’, but with next year’s summer Upper House election, the CDP have to find a fine balance between pushing their policies forward while also not being seen as in bed with their political rivals, the LDP. They want to drag out the conversation in the Diet, rather than the back-door dealings that have resulted in the DPP’s support the LDP/Komeito but are currently at a disadvantage. Nippon Ishin remains staunchly opposed to working with the LDP due to perceived broken promises on political reform. We expect the new leader of Nippon Ishin, once they are elected by party members on December 1st, to hold a similar stance.

Adding into this mix is the unprecedented chairing of major committees by opposition parties; namely the Budget Committee now under the helm of the CDP. Eight chair seats (five to the CDP, and one each to Nippon Ishin, Komeito, and DPP) will all complicate matters for the LDP but none as vexing as the Budget Committee chair. It will be important to watch how Mr. Azumi wields this enormous power to hinder the LDP while showcasing Japanese citizens the CDP’s willingness to seek common ground.

It's going to be a bumpy but exciting time in the Japanese Diet.

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