Political Economy AnalySynthesis No.

Name: Agatha Regina M. Don

Course and Section: IDS41
Subject: International Political Economy
Professor: Mr. Jumel G. Estrañero

Japan's Kishida: cabinet to ensure wage growth exceeds rate of inflation

NEWS TIDBITS: In an article by Reuters, it is stated that Japanese Prime Minister Fumio Kishida
expressed his desire to increase people’s salaries more than the prices of goods and services. The
source of funding for this initiative is not clear, however, the Japanese government can motivate
companies to raise wages by giving them tax benefits, subsidies, and other kinds of assistance.

Reuters. (2023, September 13). Japan’s kishida: Cabinet to ensure wage growth exceeds rate of inflation.
https://www.reuters.com/markets/asia/japans-kishida-will-make-sure-wage-growth-exceeds-rate-inflation-2023-09-
13/#:~:text=TOKYO%2C%20Sept%2013%20(Reuters),conference%20after%20reshuffling%20his%20cabinet.

ANALYSIS: In contrast to the rest of the world, Japan has been going through deflation since the
mid-1990s. This is caused by different multifaceted factors such as the oversupply of goods and
services connected to the weak consumer demand, which reduces the prices of goods and services.
Japanese Banks’ reluctance to lend money because of the low performance of loans and excessive
debt contrasts with the monetary policy that implements low-interest rates to stimulate the
economy and encourage borrowing, spending, and investment. Such changes in monetary policies
resulted in a liquidity trap, where such policies were deemed ineffective and could not stimulate
the economy due to decreased spending by households and businesses. People do not spend or
invest, instead, they hoard cash due to the uncertainty caused by deflation. Aside from that, despite
its global reputation, Japan's technology advancement was not enough to combat deflation since it
lags behind other economies in the adoption of digitalization by enterprises, the government, and
the financial system. Raising people’s salaries can have a positive impact on the economy by
increasing demand which could lead to a cycle of higher prices and wages. With more money to
spend, the higher the possibility for the people to consume goods and services, which will result
in encouragement for investments in the economy. This is because a company that offers higher
wages can lead entrepreneurs to invest and lead to job creation and economic growth. In addition,
higher wage reduces household debt which gives an opportunity for the household to spend or
invest instead of paying debts.

POLICY RECOMMENDATION: What Japanese Prime Minister Fumio Kishida has expressed
in this article can lead to Japan’s solution to the deflation problem. This is in addition to other
policies such as fiscal policies which will increase government spending and can help increase
demand and create jobs, and structural reforms to increase productivity, reduce regulations, and
promote competition which can stimulate the Japanese economy to be more active, putting an end
to their long-ongoing deflation.