Press Conference by Prime Minister Kishida

[Provisional translation]

[Initial remarks by Prime Minister Kishida]
In the policy speech I delivered at the Diet last week, I emphasized “the economy, the economy, and the economy” and stated my resolve for this administration to place importance on measures to address rising prices and the economy over all else. Today, the Government and ruling parties took a decision on that resolve in the form of our “Comprehensive Economic Measures to Break Completely Away from Deflation.”
 
First of all, I will overview the approach we are taking in these economic countermeasures.
 
For 30 years since the bursting of the bubble, Japan has been beset by deflation. Japanese companies, particularly large corporations, have prioritized short-term improvements to their profitability and reduced prices, then pursued cost-cutting in order to secure profits. Putting it simply, they held wages and investments in check and shifted the burden to subcontractors.
 
When I took office as prime minister, I advocated a New Form of Capitalism because I reasoned that unless we eradicate the downward spiral of this cost cutting-oriented economy with a shrinking equilibrium, the Japanese economy will not be able to grow again.
 
Over the two years I have been in office, I have strongly encouraged the business community to raise wages, make capital investments, and invest in research and development. Moreover, I have made all-out efforts to reform companies’ dealings with subcontractors, including by promoting subcontractors’ ability to pass price increases through to product prices. As a result, we have achieved the first dramatic level of wage increases in the last 30 years during the annual springtime wage bargaining negotiations, the greatest amount of private-sector investment in history, a stock price level not seen in 30 years, and elimination of the 50 trillion-yen deflationary gap, and our gross domestic product (GDP) for the April to June period this year was the highest ever, in both nominal and real terms.
 
However, we are still only halfway to reaching our goals.
 
Wages rise, and consumption increases because household budgets’ purchasing power grows. This results in the prices of goods rising at an appropriate level, leading to greater corporate sales and business performance, thereby calling in new investment and companies entering their next growth stage. This then results in wages rising once again. This kind of virtuous cycle has yet to be completed.
 
Wage hikes and investment hold the key here.
 
The greatest issue we face at present is that wages are not keeping up with inflation. In the background is the situation that, despite wages increasing at a portion of major corporations that can afford to do so, a large number of micro-, small-, and medium-sized enterprises do not yet have the ability to raise wages. A certain transitional period will be necessary to completely extricate ourselves from deflation and realize an expansionary virtuous cycle in which wages and investments rise.
 
In light of that, we have prepared two stages of policies and measures within our new economic measures.
 
Our first-stage measures are measures providing urgent assistance for daily life, which we will undertake beginning from within 2023 to immediately after we begin the new year. Specifically, for households facing tough times in their daily lives, we will provide additional assistance of 70,000 yen per household as swiftly as possible, which is in addition to the 30,000 yen per household already being provided, for a total of 100,000 yen in benefits per household. Through this, we will support people in their daily lives.
 
Our second-stage measures are measures to boost income in earnest, to be taken starting next spring into next summer. First of all, as we head towards the annual spring wage bargaining negotiations, I will lead the efforts to urge the business community to raise wages at a level beyond that of 2023. At the same time, some 70 percent of working people are employed at small- and medium-sized enterprises (SMEs). For that reason, in the year-end revision to the tax system, we will expand the tax provisions for wage increases so that SMEs, medical corporations, and other groups having a large number of companies in the red can also take advantage of it. We will at the same time make all-out efforts to support wage increases at SMEs, including by further promoting proper business transactions, such as by strengthening measures for passing price increases through to clients.
 
In this way, the Government intends to make its greatest possible efforts to improve the environment for moving forward with wage increases, but it is uncertain whether or not people’s wages next year will rise more than prices do. And yet, if we fail to seize this opportunity, it will be difficult for us to extricate ourselves from deflation. We will expand disposable income, link this to greater consumption, and bring about a virtuous cycle.
 
For that reason, at the timing of next year’s June bonus, I intend to reduce income and resident taxes by a fixed amount for both individuals and their dependents, at a total scale of mid-three trillion yen, covering roughly 90 million people at a total of 40,000 yen per person. Reducing taxes on a per-person basis, regardless of whether it is individuals or their dependents will also become unprecedented tax cuts oriented towards supporting child rearing. For example, taxes on a household raising two children will be reduced by 160,000 yen.
 
In this way, at the stage of summer 2024, by combining wage hikes with income tax cuts, I intend to create without fail circumstances by which the growth in people’s income exceeds price increases. By doing so, we will be able to see our breaking free from deflation.
 
Now, I am also aware of the view that paying out benefits, rather than reducing taxes, will get money into people’s hands at an earlier time. As I stated earlier, benefits will be paid out in our first-stage urgent assistance for people’s daily lives. On top of that, this income tax break is something that will increase income in earnest in the second stage and also bring about a virtuous cycle. From the perspective of supporting the income of a broad range of people, I believe it is necessary to create an environment in which the effects of both wage increases and income tax reductions are reflected in people’s pay stubs in a tangible way, at the timing of next year’s summer bonuses.
 
Some have also pointed out that, if in the years to come there will be no way to avoid increasing the burden to be shouldered by the public for defense spending and addressing the low birth rate, then we shouldn’t be cutting taxes. But there is an order to be followed in our policies and that order is the most important thing.
 
As for defense spending, in order to maintain our defense capabilities strengthened to 2 percent of GDP from fiscal 2027, we are now working to ensure financial resources towards fiscal 2027. For that reason, first of all, in order to protect people’s livelihoods, it is imperative that we be absolutely certain to break free of deflation and get measures to bring about economic growth underway first. Accordingly, we are not thinking of implementing this tax cut simultaneously with tax measures for defense.
 
With regard to addressing the declining birth rate, by pushing forward with social security reform that includes improved efficiency as a result of promoting digitalization, we will examine the matter to ensure there is no real increase in the burden placed on citizens. We will address this within the context of advancing social security reforms over a period of several years, making it entirely consistent with this income tax reduction.
 
It goes without saying that a strong economy is the foundation for all policies.
 
When I said “the economy, the economy, and the economy” in my policy speech to the Diet, that was rooted in my firm belief that without invigorating the economy, it will be impossible to being about either robust national security or sustainable social security. Our highest priorities at the moment are extricating ourselves from deflation and setting the economy on a growth track. So I would like everyone to understand the order, with revitalizing the economy coming first and foremost.
 
Right now, we are truly teetering on the edge of being able to break free from deflation, which is precisely why we will mobilize our entire array of policies and increase people’s disposable income. I wish to underline once again that the income tax cuts will be taken for that reason.
 
As we support people’s disposable income, we will make all-out efforts to strengthen Japan’s earning capacity. We will provide firm support for investing and further strengthen the current investment flow, which is now taking place at the greatest amount of investment ever. This will result in the trend of wage increases becoming well-established and set the virtuous cycle of growth and distribution in motion.
 
We will set in place the tax system for incentivizing wage increases and expand investments into human resources, the most important element. We will strengthen the system in a way that facilitates its use even by SMEs in the red, which until now were unable to utilize the tax system.
 
Thus, we will pursue lower tax rates on capital investment together with support for strategic investment. In Kumamoto Prefecture, large-scale investment into semiconductors has already given rise to good quality employment and wage increases are spreading. We will establish unprecedented tax and subsidy programs for semiconductors, storage batteries, battery electric vehicles, and other strategic fields and bring in large-scale investments one after another all around Japan.
 
Next is investment in energy conservation and automation by SMEs. We will provide support in a form that companies active across a range of fields from retail, dining and drinking, and accommodations services to manufacturing will find easy to use, by selecting from a catalogue of menu options that address the shortage of labor.
 
We will also target the digitalization of logistics and transportation. We will develop digital information delivery channels and demonstrate physical distribution that utilizes self-driving trucks. We will also support investments in logistics, which is facing the “2024 problem.”
 
We will also pursue green transformation (GX) in people’s daily lives. Households are also drivers of investment. We will reduce utility bills and support comfortable living through the installation of heat pumps, renovations for the installation of insulated windows, subsidies and other initiatives to support the purchase of battery electric vehicles, and other measures.
 
With regard to disincentives for second earners to earn more than a certain amount of income annually, known as the “annual income barrier,” it has long been pointed out that second-earner income barriers exist at the levels of 1.06 million yen and 1.3 million yen. We have prepared, and are already implementing, assistance in concrete form in order to substantially eliminate those barriers by creating an environment in which second earners can from now work without worrying about the number of working hours and earn the income they desire.
 
In this way, a full range of means have been incorporated, including budgetary, tax, and institutional and regulatory reforms. In particular, regulatory and institutional reforms cover 36 items, the most among economic measures compiled since 2013. We will mobilize a full spectrum of measures to reinforce our earning capacity.
 
The scale of this package of economic measures is expected to be between 17 and 17.5 trillion yen in total. What I persist in prioritizing is breaking free from deflation and setting the economy on a growth track. It is when the economy grows that tax revenues also increase, leading then to sound public finances. I ask for the public’s understanding of the order we will follow, with economic revitalization coming first. Based on that thinking, we drew up economic measures that include temporary income tax cuts.
 
At the same time, we formulated large-scale supplementary budgets in our responses to the COVID-19 pandemic, and now that those responses have been completed, we will adhere to our policy of returning our expenditure structure to that of normal times. In formulating these economic measures as well, we will reduce our reserve budget, totaling five trillion yen, by half and use it as a source of funds. Within the process for formulating the budget, which will take place by the end of the calendar year, we will examine the further normalization of the expenditure structure.
 
We will formulate the supplementary budget serving as backing to the economic measures on which we took a decision today and submit the measures to the extraordinary session of the Diet, getting them passed at an early time. Completely wresting ourselves away from long-running deflation is the greatest issue for us in realizing a Japan where tomorrow is better than today. It is essential for citizens as a whole to work together on this, including our political, business, and labor circles. The Government will stand at the fore and make all possible efforts. I ask for ongoing cooperation from all of you in the public.
 
[Q&A]
 
(Japan Times, Ninivaggi)
I would like to ask you about the government’s strategy for inbound tourism. Last month, October, Japan marked one year since it reopened after the COVID-19 pandemic for entry by individual travelers for tourism purposes. The number of visitors to Japan has rebounded back to its pre-COVID-19 level and the amount of consumption by tourists and number of persons staying in paid accommodation have both reached high levels. Yet at the same time, there are numerous problems at present, such as overtourism. The Government has set a target of receiving more than 32 million foreign tourists by 2025, but are there any plans to set a more long-term target? Also, with the labor shortage becoming increasingly serious in the tourism industry, what steps will you take to secure workers?
 
(Prime Minister Kishida)
In October 2022, we relaxed our border measures. Since then, tourism demand has recovered rapidly. At present, our target of 5 trillion yen of travel consumption by non-Japanese visitors is coming into view as being achievable ahead of schedule. By also pushing forward with other initiatives to follow upon these measures, I want to aim at the figures of 60 million visitors and consumption of 15 trillion yen in 2030, based on our Vision for Tourism. In realizing the creation of sustainable tourism areas, I think it will be important to ensure that the daily lives of the residents achieve harmony with fostering a high added value within tourism areas and the tourism industry.
 
As you mentioned, in some areas where tourists concentrate, or at certain times of day, various concerns have emerged, such as excessive congestion, poor manners, and a decline in the degree of tourist satisfaction. The problem of what is called “overtourism” has been highlighted. In response, last month the Government compiled a package of measures for preventing overtourism before it occurs and keeping it in check. Within these economic measures, I consider it imperative for us to realize sustainable tourism by promoting measures for improving the environment for accepting foreign tourists visiting Japan, such as preventing overtourism before it occurs and keeping overtourism in check, establishing content that offers a high degree of added value, and responding to the labor shortage in the tourism industry. Even as we work towards the targets I just mentioned, we will at the same time pay careful attention to addressing these kinds of overtourism concerns. We will pursue both simultaneously.
 
(AP, Yamaguchi)
I would like to ask you about the release of ALPS (Advanced Liquid Processing System) treated water into the ocean. Today, the third release of water began, and more than two months have passed since water release operations began on August 24. According to the International Atomic Energy Agency (IAEA) and others, operations have been progressing without issue until now, but China still maintains an embargo on imports of Japanese marine products. I would like to hear your thoughts on this, including regarding future Japan-China relations, such as, how long will this situation continue, and how will Japan respond to China going forward? For example, will an appeal to the World Trade Organization (WTO) or other such approaches be within the realm of consideration?
 
(Prime Minister Kishida)
First of all, with regard to ALPS-treated water, Japan has been adhering to a position of providing explanations grounded in scientific evidence in a transparent manner. I believe that, as the result of Japan’s explanations and urging to other countries in the world, many countries in the international community have an understanding based in scientific evidence regarding Japan’s approach. That said, as you stated, some countries are implementing import restrictions on Japanese products, without any basis in scientific evidence.
 
I believe that towards these countries, we need to continue to provide careful explanations within our bilateral relations while also requesting the removal of such restrictions. Alongside this, I consider it important for Japan to undertake such measures as laying out its thinking at various international meetings, including the WTO.
 
You mentioned bringing the situation before the WTO, but we need to weigh carefully which response will, in concrete terms, have the greatest sense of speed. However, I also believe it is certainly important to pursue the steps of making good use of international fora to lay out Japan’s approach and broaden understanding.
 
I believe that, in any case, in our relations with China, we must maintain constructive, stable relations by continuing our various dialogues, including with regard to this issue. China is our neighbor, and Japan’s largest trading partner is China. Although various issues exist between us because we are neighbors, I will say to China the things that need to be said and urge China to fulfill its responsibilities properly as a major power. Through dialogue, we will cooperate in areas such as climate change where we should cooperate. I believe that by doing this, our policy of advancing our constructive and stable relationship through efforts on both sides will remain unchanged into the future.
 
At this moment, in the upcoming diplomatic schedule, nothing has been decided for dialogues or summit talks within the various scheduling, including at APEC (Asia-Pacific Economic Cooperation), but Japan will place importance on its position of engaging in close communication, including high-level dialogues, while adhering to the stance I just mentioned.