Japanese Prime Minister Yoshihide Suga's cabinet held a cabinet meeting on June 18 and confirmed the basic policy of economic and fiscal management and reform (Honefuto Policy). The basic economic and fiscal management policy, which is set every year in June and July, becomes the basic direction of the Japanese government's economic policy and budget formation for the following year.
Through the basic economic and fiscal management policy, we will look at the economic policies that the Japanese government will focus on next year. The first priority of the Honefuto policy last year, when the Japanese government's backwardness was revealed to the full after the spread of the novel coronavirus infection (COVID-19), was the digitalization of the administration. This year, three key areas were selected as key tasks: digitalization, decoalization, and economic security with China in mind. Raising the minimum wage and improving the employment system are also predicted as economic policies to be watched by the Japanese government next year.
Economic Security: Support for semiconductors ‘at the level of major countries’
The Japanese government has designated semiconductors as an “international strategic material” for digitalization and has decided to provide support at a level similar to that of its competitors. Currently, the size of the fund created by the Japanese government to support semiconductors is 2 trillion yen (about 20.5 trillion won).
On the other hand, Europe is planning to provide 145 billion euros (about 197 trillion won) and the US 39 billion dollars (about 44 trillion won) for the next two to five years. China also announced 100 trillion won in aid. Korea has agreed to provide about 5 trillion won in aid by 2022.
Aware of the difference from other countries, Akira Amari, chairman of the Semiconductor Strategy Promotion Association (Chairman of the Tax Manufacturers Association) of the ruling LDP, said, “We want support in the amount of trillions of yen.”
The designation of semiconductors as an international strategic material is to prepare for a repeating global semiconductor shortage. Japan relies on imports for more than 60% of its semiconductors. In particular, it is highly dependent on Taiwan and China. There is also the aspect of strengthening the line of cooperation with the Biden administration. At the US-Japan summit in April, the two leaders agreed to rebuild the global semiconductor supply chain.
The Japanese government plans to focus its investment on attracting manufacturing and development bases for semiconductors used in smartphones, home appliances and self-driving vehicles in Japan.
Coal removal: Small trucks and buses will also become eco-friendly vehicles by 2040
In his first speech at the National Assembly since taking office last October, Prime Minister Suga formalized the goal of realizing a coal free society by reducing real carbon dioxide emissions to zero by 2050. To this end, the Japanese government has decided to increase the proportion of renewable energy such as offshore wind power generation to 60-70% of the total by 2040.
It plans to increase the offshore wind power generation facility, which currently has a power generation capacity of only 14,000 kW, to 10 million kW by 2030 and 30 million to 45 million kW, which is the size of 40 nuclear power plants by 2040.
The policy will also be mobilized to foster the hydrogen industry, which is promising as an alternative to fossil fuels. The hydrogen price, which is currently 1,100 yen per kg, has set a goal of lowering it to 330 yen by 2030 and 220 yen in the long term. The number of hydrogen stations for vehicles has also been increased to 1,000 by 2030, six times the current number.
The “Green Growth Strategy,” a roadmap for decoalization announced in December last year, was also specified in the Honefuto policy. First, it has decided to replace new cars with eco-friendly cars by 2035. Small commercial vehicles such as trucks of 8 tons or less will also be replaced with eco-friendly vehicles such as electric vehicles, hybrid vehicles, and fuel cell vehicles (FCV) by 2040.
The Japanese government plans to have 30,000 quick chargers and 150,000 charging facilities for electric and hybrid vehicles by 2030 to disseminate eco-friendly vehicles. The company also decided to provide subsidies to increase its EV battery manufacturing capacity to 100 million kW.
The Japanese government is particularly demanding reforms in the automobile industry. In 2019, 16% of carbon dioxide emitted in Japan came from automobiles. As a result of focusing on hybrid vehicles, the penetration rate of eco-friendly vehicles such as electric vehicles is also significantly lower than that of competing countries.
According to the International Energy Agency (IEA), the number of electric and plug-in hybrid vehicles sold worldwide last year increased by 40% to 3 million units in one year. Europe more than doubled to 1.4 million units. In Japan, it fell 25% to 29,000 units.
Minimum wage: 1,000 yen on average nationwide
In the Honefuto policy, the Japanese government stated, "We are aiming for an average of 1,000 yen nationwide by continuing the performance before the spread of COVID919." Last year, the national average minimum wage in Japan was 902 yen. Former Prime Minister Shinzo Abe's cabinet first set out in 2016 the goal of raising the minimum wage by 3% per year to achieve the national average of 1,000 yen in the Honefuto Policy.
By 2019, this goal has largely been achieved. However, last year, the Minimum Wage Council of the Ministry of Health, Labor and Welfare suspended the presentation of the target due to the impact of COVID-19. As a result, the minimum wage in Japan rose by 1 yen (0.1%) last year.
The minimum wage in Japan is lower than that of major countries. The price is 9.5 euros (about 1260 yen) in Germany, 10.25 euros (about 1360 yen) in France and the UK and 8.91 pounds (about 1380 yen), respectively. Last year, most countries raised the minimum wage by 1-2% during the COVID-19 outbreak.
South Korea's 8,720 won is lower than Japan's, but it raised the minimum wage by nearly 30% over the two years 2018-2019. In the United States, the federal minimum wage is $7.25 (about 800 yen), but many states set the minimum wage at a higher level.
At the current minimum wage, even if you work 40 hours a week, your annual income is less than 2 million yen. In the past, most of the workers on the minimum wage were housewives or students working part-time, so the impact on household income was not large. In recent years, more and more cases of household heads receiving the minimum wage are being evaluated, which is directly related to household income and consumption levels.
Small and medium-sized enterprises (SMEs) are strongly opposed. Representatives of three small and medium-sized enterprises (SMEs) groups, including Japan Chamber of Commerce and Industry Chairman Akio Mimura, met with Prime Minister Suga on June 4 and asked for the minimum wage to be maintained, saying, “Many small and medium-sized enterprises and small businesses are facing a business crisis due to COVID-19.”
They argued, "If the minimum wage is raised further, it will put pressure on the management of the businesses that support the local economy, which will lead to employment adjustment and increase in business closures."
The Honefuto policy also stated, “We will accelerate the movement to prepare for the post-coronavirus by changing the organization and structure of society as a whole, including corporate organizations that are out of line with the times, ways of working, and methods of nurturing human resources.” Specifically, we actively support human resource development and reeducation. A system to provide subsidies to workers who are concurrently studying will be established.
It was decided to encourage the introduction of a selective four day work week system and to promote side jobs and side jobs so that excellent talent and funds can flow into startups (new venture companies). It is also decided to revitalize start-ups that are low compared to the US and Europe.
The reason why the Japanese government reflected the way of working and reeducation in the Honefuto policy was that it was judged that economic recovery would be difficult without improving low productivity. According to the Japan Productivity Center, labor productivity per Japanese in 2019 was $81,183 (about 92.36 million won), ranking last among the seven major countries (G7).
