Japan approves $177 billion stimulus to mitigate inflation pain
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Japanese Prime Minister Sanae Takaichi’s Cabinet approved the largest round of extra spending since the pandemic.
PHOTO: AFP
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TOKYO - Japanese Prime Minister Sanae Takaichi’s Cabinet approved the largest round of extra spending since the Covid-19 pandemic, deploying funds to address the frustrations of voters in a package that may unsettle investors scrutinising the nation’s finances.
The total package is valued at 21.3 trillion yen (S$177 billion), with the bulk of the measures – 11.7 trillion yen – aimed at price relief, the Cabinet Office said on Nov 21. That includes provisions to dole out 7,000 yen in subsidies for gas and electricity bills for each household over three months until March, a one-off 20,000 yen cash handout per child and two trillion yen in funds to aid regions.
“If the larger amount sends an unintended message to markets or overseas and ends up adding to yen-weakness risks, we may have to discount the expected economic impact of the package,” said Ms Saori Tsuiki, senior economist at Mizuho Research & Technologies.
The yen has weakened past 157 per dollar, its softest since January, prompting verbal warnings
The sizeable allocation for price relief highlights Ms Takaichi’s commitment to tackling persistent inflation, which has fuelled voter frustration and contributed to the ouster of her predecessors. Data on Nov 21 showed that Japan’s key price gauge has stayed at or above the Bank of Japan’s 2 per cent target for 43 straight months, marking the longest such stretch since 1992.
Among other measures to counter inflation, about one trillion yen was set aside to abolish the petrol tax, a measure first proposed by opposition parties including the Liberal Democratic Party’s new junior coalition partner Ishin. Raising the income tax-free threshold, another idea originally from opposition parties, was also adopted, costing 1.2 trillion yen.
These price measures together are expected to push down the overall inflation gauge by an average 0.7 percentage point from February to April, according to the Cabinet Office.
Public support for Ms Takaichi’s Cabinet so far remains strong, according to local polls. An ANN survey conducted last weekend showed her approval rate rising 8.8 points to 67.5 per cent, with a majority of respondents expressing hopes over her economic package.
“It is clear that Japan will face higher spending pressure on social security, interest payment and national defence for some time,” said S&P Global Ratings sovereign analyst Rain Yin.
“However, our sovereign rating on Japan has already factored in Japan’s longstanding weakness in the fiscal balance and its extremely high government debt burden. This assessment is unlikely to worsen substantially from further weakening at the margin.”
The government estimates that the package will lift the nation’s gross domestic product by an average of about 1.4 percentage points a year on an annualised basis for three years, assuming the measures take effect during that span, it said.
The economy posted its first contraction in six quarters in the July to September period, partly due to the US tariff impact.
On that note, the economic package pledges to strengthen the financial foundations of the Japan Bank for International Cooperation and Nippon Export and Investment Insurance to ensure the implementation of a US$550 billion (S$719 billion) investment fund that was a key part of Japan-US tariff agreement.
It also says it will explore new funding sources to invest in sectors critical to economic security, such as shipbuilding, quantum technology and critical minerals. BLOOMBERG
