Economy

Japan to add $200 billion to spending package


© Stocksak. FILEPHOTO: Fumio Kishida is Japan’s Prime minister and delivers his policy speech in an extraordinary session at Tokyo’s lower house of parliament on October 3, 2022. REUTERS/Issei Kato

By Leika Kihara and Yoshifumi Takemoto

TOKYO, Stocksak – Friday’s announcement by the Japanese government that it will prepare a budget of 29.6 trillion yen ($200.88billion) to finance a fresh spending package to mitigate the economic blow to households.

The package will include municipal government spending and corporate spending. Fiscal spending is worth 39.0 trillion.

According to the government’s estimates, the massive spending includes items like subsidies for households to offset rising electricity and gas prices, as well as support for businesses to raise wages. The government stated that this was expected to boost gross domestic products by 4.6%.

Before the package was approved by the cabinet, Prime Minister Fumio Kishhida stated that “our focus is to respond rising prices, weak yen as well as promote investment to raise wages, and economic growth.”

The administration of Kishida promised to put together a spending package to cushion the economic impact of rising fuel prices and food prices.

The premier is under pressure from lawmakers from the ruling party to increase spending to alleviate the pain on retailers and households, as his approval ratings have dropped to levels that could make him unable to carry out his agenda.

The government will offer subsidies to reduce household electricity bills by approximately 20%, starting in January and ending in September next year.

It will also issue coupons to parents with newborns and extend a subsidy for gasoline prices.

These steps, along with other steps, were likely to reduce the nationwide consumer price index by about 1.2 percentage point between January and September next years, according to a government estimation.

Nomura Research Institute projects that Japan’s nominal GDP (GDP), will rise by 2.39% if it spends under the package.

Takahide Kuchi, the executive economist at the think-tank, warned that spending too much at a time when the economy appears to be in a good place could cause a problem for Japan, which has the largest public debt of all major economies.

Kiuchi, a former BOJ boardmember, stated that “The Bank of Japan’s extraordinary monetary easing combined with the government’s expansionary fiscal spending creates a policy mix which erodes market confidence in the yen.” “This could accelerate unwelcome falls in the yen.”

Consumers were also skeptical of the impact of these measures. Some even advocated for more drastic measures such as a reduction in the 10% consumption taxes.

“If it goes back at 3%, the economy can be stimulated very much, but I think they could aim for 8%,” stated Takashi Sato, a 55 year-old company executive.

“Ideally, it should be 5%. Then we could probably see GDP growth.”

Analysts believe that the government will issue bonds in order to fund some of this spending, adding to Japan’s already enormous debt pile.

To stop the yen sliding to 32-year lows, the government intervened on the currency market. This was due to the divergence in interest rates between the BOJ’s ultralow interest rates and the steady rate increases by the U.S. Federal Reserve.

($1 = 147.3500 yen)

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