“The wall of 1.03 million yen”: a test for Japan’s “deliberative” democracy

"The wall of 1.03 million yen" has arguably been the most frequently used phrase in Japanese politics since last winter. 

It refers to the annual income threshold (1.03 million yen a year) at which income tax starts being imposed. Unchanged for 30 years, it has been known as the "wall" that part-time workers may deliberately adjust their working hours to stay below. 

This “wall” has now become more than just a tax policy issue; in fact, it turned into a key political focal point as the Liberal Democratic Party (LDP) sought to recover from its major electoral defeat in the 2024 election which led to Japan’s first minority government in thirty years. The debate that ensued surrounding this issue provides an instructive test case for Japan’s “deliberative” democracy. 

Electoral shake-up 

In the 2024 Lower House election, the LDP saw the number of its seats drop from 279 to 215 out of 465. The number of seats held by parties in the ruling coalition fell short of the threshold needed to pass the budget. On the other hand, the Democratic Party for the People (DPP), an opposition party which consistently campaigned on increasing take-home pay through substantial tax reduction, quadrupled its seats from 7 to 28. It was in this context that attention was turned to “the wall of 1.03 million yen”, the DPP’s flagship policy proposal. The DPP was unconventional in that, despite being an opposition party, it had previously supported the LDP’s government budget proposals. The key question became how much of the DPP’s proposal the LDP would be willing to accept. 

The policy proposal 

Under the current tax system, individuals who earn less than 1.03 million yen a year are not subject to income tax (the average annual income in Japan is approximately 4.6 million yen, or about £23,500). This has led many part-time workers— who often take up non-regular jobs as opposed to Japan’s seniority-based, rigid full-time employment system — to deliberately limit their working hours to avoid crossing the threshold. The DPP argued that “the wall of 1.03 million yen” was obstructing Japanese economic growth; it was impeding workforce participation, suppressing disposable income, and stifling household consumption. The tax exemption threshold needed to be raised to 1.78 million yen, the DPP argued, to overcome these challenges. 

Structural foundations 

The unusually high public interest in the debate over Japan’s 1.03 million yen tax exemption threshold—despite its technical nature—stems from the fact that the issue encapsulates several of Japan’s deep-rooted structural challenges. These include prolonged economic stagnation, with sluggish GDP growth and stagnant wages since the 1990s; a rapidly ageing and shrinking population, with 29.1% of the population aged 65 or over and a very low fertility rate of just 1.20; as well as severe labour shortages, illustrated by the 126 job openings for every 100 applicants. 

The debate also spotlighted entrenched gender inequalities, as only 53.5% of women participate in the labour force and the gender pay gap stands at 21.3%, the fourth largest among OECD countries. Historically, the “wall of 1.03 million yen” has been a symbol of gender inequality, and since more than half of women are still employed in non-regular jobs, women are significantly affected by tax reductions. Moreover, while raising the threshold could help boost labour participation and increase disposable income, it clashes with Japan’s effort to reduce its fiscal deficit, which stands at a staggering 248.7% of GDP, the highest among major developed economies. 

“Deliberative parliament” 

In Prime Minister Ishiba’s speech at the beginning of the year, he stated that “both the ruling and opposition parties must engage in responsible deliberations” to reach cross-party consensus and gain public understanding and support. “Through sincere policy discussions that reflect the voices of diverse citizens, we will ensure governance that aligns with the true spirit of democracy”, he added. But did "deliberation" actually materialise? 

On December 11, as final adjustments to the budget were being made, the ruling LDP and Komeito signed an agreement with the DPP. The document included the following commitment: “the so-called 'wall of 1.03 million yen' will be raised next year, aiming for the 1.78 million yen threshold as advocated by the DPP." 

However, negotiations stalled as the LDP insisted on raising the threshold only to 1.23 million yen while the DPP refused to compromise. As a result, the budget was approved by the Cabinet without further changes. 

As the budget debates in the Diet, Japan’s parliament, began in the new year, the LDP resumed discussions with the DPP. The LDP proposed a concession by raising the income threshold to 1.6 million yen while introducing a four-tier deduction system for those earning up to 8.5 million yen. However, the DPP rejected this plan as insufficient. 

Around the same time, the Japan Innovation Party (JIP), which had maintained its position as the second-largest opposition party despite losing seats in the previous election, started aligning with the LDP. The JIP hinted that, if the LDP accepts the JIP’s proposal to make higher education free, the JIP would support the LDP’s budget. This shift ensured that the budget would be passed. 

The result and implications for Japan's democracy

The debate surrounding the income tax exemption threshold, which might seem like a mere technical issue, garnered significant attention as a key negotiation point for passing the budget under a minority government. The ruling and opposition parties held nearly ten rounds of talks to find a point of compromise and, although no formal agreement was reached, the budget bill was nonetheless revised — an exceptionally rare move within the budgetary process in the Diet. 

This illustrates not only the impact of election results on policy but also a form of deliberation that embodies a certain degree of procedural legitimacy. However, it also revealed a paradox: while the DPP’s proposal gained traction, the more ambitious policies from the Constitutional Democratic Party (CDP), the largest opposite party, were sidelined. Yet, in the end, key elements of the CDP’s proposals were also accepted by the ruling coalition, and the budget process concluded with an unprecedented revision passed by both houses of the Diet. 

It appears, therefore, that Japan’s "deliberative Parliament" is achieving some level of success. Many countries around the world are seeing a deepening of partisan conflicts and polarisation, but in Japan, democracy seems to be alive and working. 

The content of this article represents the personal views of the authors and does not reflect the official stance of any affiliated organisations.