After decades of low inflation and stagnant growth, Japan's policymakers have identified domestic consumption as a key economic driver.

Photo: CGTN

However, Tokyo also has to contend with an aging population, slowing overseas exports and global economic uncertainty. The government needs more revenue to address these issues, but it also wants to spark more spending.

This juggling act saw Prime Minister Shinzo Abe forcing through an increase in the consumption tax on October 1, raising it from 8 to 10 percent in a bid to boost government income.

How can raising taxes on consumption boost domestic spending? The controversial policy includes a tax break for consumers who use cashless payments, such as mobile payments or credit and debit cards. If you switch to cashless, you only pay eight percent in consumption tax.

In theory, the move should push more Japanese consumers towards cashless payments. Despite being one of the world's largest economies, Japan has stubbornly stuck to using cash while China, Southeast Asia and increasingly the West are using apps like WeChat Pay, AliPay or Apple Pay.

According to data compiled by Payments Japan Association, less than 20 percent of transactions in the country are currently cashless, compared to South Korea (96 percent) and China (66 percent).

Tokyo has ambitiously targeted reaching 40 percent cashless transactions by 2025, and with the Olympics set to take place next year, Japan is looking to boost infrastructure to encourage foreign visitors to spend as much as possible in the country.

However, old habits die hard, and with a large proportion of elderly consumers and a cultural aversion to debt, it will be up to Japan's young people to lead a cashless revolution to the way the country spends.