Japan's relief package will deal with rising raw material costs

The package includes subsidies to gasoline wholesalers and cash payments to low-income households with children. PHOTO: REUTERS

TOKYO (REUTERS) - Japan has prepared an emergency relief package worth 13.2 trillion yen (S$142 billion) to ease the pain on households and companies from rising fuel and raw material costs, Prime Minister Fumio Kishida said on Tuesday (April 26).

The government will tap reserves set aside under the current fiscal year's budget to fund some of the measures that require fresh spending, Kishida said at a meeting of Cabinet ministers to finalise the package.

The package featured spending on subsidies to gasoline wholesalers, cash payments to low-income households with children, the extension of funding support for small firms and the stable supply of energy and food, government officials said.

"We'll deliver it as comprehensive steps to respond urgently and flexibly to ease the impact on people's livelihoods and economic activity from crude oil and rising prices caused by the Ukraine situation," Finance Minister Shunichi Suzuki said.

The government plans to spend 6.2 trillion yen for relief measures.

The funding measures include compiling a fresh extra budget of 2.7 trillion yen and tapping 1.5 trillion yen from emergency budget reserves.

The rest will be funded by non-direct spending measures such as private-sector lending.

The amount of spending was much smaller than the previous extra budget worth 36 trillion yen rolled out in December, in a sign Kishida is carefully balancing the need to support a fragile economy while fixing tattered public finances.

With Upper House elections scheduled for July 10, however, politicians could mount pressure on Kishida's government to spend more to sway voters, despite Japan lagging behind other countries in unwinding crisis-mode stimulus.

Mitigation measures to curb gasoline prices are estimated to knock 0.5 percentage point off the consumer price index for the May-September period when they are implemented, government officials said.

"The government will likely compile a second extra budget in autumn or later this year," said Chotaro Morita, chief bond strategist at SMBC Nikko Securities.

Given the ruling Liberal Democratic Party's coalition ally, the Komeito party, has demanded an extra budget of up to 20 trillion yen, the second round of spending could be a little short of 20 trillion yen involving additional debt, he said.

That could further strain Japan's borrowings, the industrial world's heaviest public debt, at more than twice the size of its US$5 trillion (S$6.9 trillion) economy.

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