Ups and Downs

While Japan's major corporations celebrated record-breaking summer bonuses this month, a stark reality check emerged from government data: almost 90% of low-income families are struggling to put food on the table. It's hard out there these days and it's unclear what the future looks like to help those in need.

The Ups

• Corporate Japan is thriving: Private-sector average salaries found a new top of the mountain last year, riding a 3.9% increase to about 4.7 million JPY. Summer bonuses also rose over 5% to hit an average of almost 1 million JPY for 2025 - that's a big chunk of the average salary!
• The furusato nozei rush: As the timeline approaches for the government rules restricting furusato nozei donations, people are in a hurry to get what points they can. The middlemen like Rakuten, Amazon, and LY are holding events and running campaigns to get their stake of the stampede.

The Downs

• But household Japan is hurting: Save the Children Japan, a non-governmental organization, surveyed almost 8,000 low-income households in June. 88% of those households felt worse than last year, and 83% responded that their children's health is worse from the lack of food.
• Meanwhile, basic necessities are getting pricier: Rice continues to go up, returning to just around ¥4,200 earlier this month and only going further up since then.

Policy Responses Taking Shape

• LDP-CDP tax credit discussions: The Liberal Democratic Party and the Constitutional Democratic Party will begin panel discussions on a possible refundable tax credit program to help the lower end of income earners. Komeito may also participate.
• Bank of Japan's delicate balance: It's looking like October may see an interest rate hike going by remarks made by Noguchi Asahi, depending on the state of inflation at the end of the month.

Extra Signal in the Noise

A refundable tax credit would be one nice step towards getting money back into people's hands. There are several non-refundable credits that families can typically claim, but they only reduce taxes to be paid. Refundable tax credits, by contrast, can become a tax refund, giving money back to the family.

An increase in interest rates would be a further squeeze on home owners with floating rate mortgages. As an example, a 40 million yen loan over 30 years with a 0.5% interest rate would mean monthly payments of around 119,700 yen. A 25-bp hike to bring that to 0.75% would mean payments of 124,100 yen instead. 50,000 yen isn't a whole lot by itself, but it adds up, especially when food is another frequent victim of inflation these days.