Japan to announce economic package amid soaring inflation, weak yen

Relief measures of about 1.5 trillion yen are expected to be part of an extraordinary budget worth 2.7 trillion yen. PHOTO: REUTERS

TOKYO - Japanese Prime Minister Fumio Kishida will unveil an economic support package next week to help struggling low-income households and small firms, as data on Friday (April 22) showed inflation soaring to a 26-month high in March.

Relief measures of about 1.5 trillion yen (S$16 billion) are expected to be part of an extraordinary budget worth 2.7 trillion yen. The package was approved by the ruling coalition on Thursday to cushion the blow of surging energy and food prices.

Adding to the pressure on the economy is the sharply depreciating yen, which plunged to a 20-year low of 129.40 against the US dollar earlier this week.

This has made imports more expensive, amplifying the impact of soaring commodity prices and adding to the squeeze on corporate profits and consumer budgets.

"The government must be vigilant to the impact that recent yen falls could have on households and importers," said a draft document seen by Reuters news agency.

The weak yen, coupled with inflationary pressures, has dealt a hard blow to an economy that is more used to a deflationary mindset. Companies are breaking with longstanding custom to absorb price increments by passing on the costs to consumers.

Among others, confectionery makers Morinaga and Fujiya both said this week that they will raise prices of their ice cream and chocolate products by up to 10 per cent.

Convenience store chain Lawson said last week that it will - for the first time since its launch in 1986 - raise the price of its "Karaage-kun" fried chicken by 10 per cent to 238 yen from May 31.

While media surveys show that Mr Kishida continues to enjoy strong political support, over a stable Covid-19 situation and his government's response to the Ukraine crisis, anxieties are rising that the growing strain on households might prove to be the undoing for the ruling Liberal Democratic Party (LDP).

A national Upper House election is expected on July 10.

The economic package is expected to include a cash handout of 50,000 yen per child for low-income households.

It will also increase subsidies for oil wholesalers to 35 yen per litre - up from the current ceiling of 25 yen - to encourage them to lower retail petrol prices.

Small and medium enterprises hit by inflation, as well as livestock farms affected by surging grain and wheat prices, will also likely get financial support.

These measures come as wage hikes have largely failed to meet government targets of at least 3 per cent. Data from Japan's largest labour union Rengo showed that as at last week, salary increments across sectors were 0.62 per cent on average.

Finance Minister Shunichi Suzuki and Bank of Japan governor Haruhiko Kuroda warned this week of the damaging impact of rapid yen movements on the economy.

The central bank is set to convene a two-day monetary policy meeting next week where its stance on the weak yen and inflation will be watched.

Figures on Friday showed that the core consumer price index (CPI) rose 0.8 per cent in March from a year earlier.

But this was largely suppressed due to government policy last year to slash mobile rates, with carriers introducing low-cost plans from April last year. Mobile charges dropped 52.7 per cent.

Excluding the impact of this decline, inflation was about 2.2 per cent, with electricity prices rising 21.6 per cent and the cost of cooking oil surging 34.7 per cent.

Wholesale inflation, which monitors prices of goods before they reach consumers, hit 9.5 per cent in March at a 26-month high.

To make matters worse, economists expect the CPI to jump from April after the impact of lower mobile bills is removed, and as energy prices continue to climb due to the Ukraine crisis.

The package, to be unveiled next week, is due to be submitted to the Diet for approval in May.

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