Yuichiro Tamaki, leader of Japan’s Democratic Party for the People (DPP), has emerged as a pivotal figure advocating for bold, Yellen-inspired economic reforms to lift Japan out of its prolonged deflationary slump. Known for his fiscal conservatism from his days as a finance ministry bureaucrat, Tamaki now champions policies aimed at boosting demand through aggressive tax relief and welfare spending.
Tamaki’s transformation was sparked by Janet Yellen’s 2016 call for a “high-pressure” economy, where high demand and a tight labor market spur sustained growth. Reflecting on her vision, he described in a 2021 blog post how it clarified his own ideas on reviving Japan’s economy.
Now, as leader of the DPP, Tamaki wields newfound influence following an October election that left Japan’s ruling Liberal Democratic Party (LDP) and its coalition partner, Komeito, without a stable majority. Prime Minister Shigeru Ishiba’s administration is courting the DPP’s support on key economic policies, and Tamaki has signaled willingness to collaborate on areas of mutual interest.
A Bold Fiscal Vision for a New Japan
With policies like raising the tax-free income threshold, halving the consumption tax temporarily, and pausing interest rate hikes, Tamaki has captured the support of younger voters and drawn the attention of economists. He believes Japan, with its relatively low inflation and recent revenue surpluses, can afford to take calculated fiscal risks.
However, some financial experts are cautious. While proponents like Takuya Hoshino of Dai-ichi Life Research Institute acknowledge the potential to spur long-stagnant consumption, others warn that Tamaki’s plans could swell Japan’s already towering public debt and stoke inflation. Critics, including Norihiro Yamaguchi from Oxford Economics, argue that his policies might strain the bond market, making it challenging for the Bank of Japan to unwind its quantitative easing program.
Paying the Price?
The finance ministry has projected a revenue loss of over 7 trillion yen (US$46 billion) if Tamaki’s income tax threshold hike is implemented. Yet, Tamaki remains undeterred, pointing to Japan’s ample fiscal capacity compared to other developed economies.
In a rapidly evolving political landscape, Tamaki’s vision is a bold departure from the “Abenomics” playbook. Whether his approach can usher in the economic boom he envisions—or destabilize Japan’s delicate fiscal balance—remains to be seen.
