Japan eyes record stimulus package, bucking global tapering trend

Fumio Kishida, Japan’s prime minister, speaks during a news conference at the prime minister’s official residence in Tokyo October 4, 2021. — Reuters pic
Fumio Kishida, Japan’s prime minister, speaks during a news conference at the prime minister’s official residence in Tokyo October 4, 2021. — Reuters pic

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TOKYO, Nov 19 ― Japan is set to compile today a record US$490 billion (RM2.05 trillion) spending package to cushion the economic blow from the Covid-19 pandemic, bucking a global trend towards withdrawing crisis-mode stimulus measures and adding strains to its already tattered finances.

Spending has ballooned due to an array of payouts including those criticised for being unrelated to the pandemic, such as cash handouts to households with youth aged 18 or below, and will likely lead to additional bond issuance this year, analysts said.

The massive spending would underscore the resolve of Prime Minister Fumio Kishida ― once considered as favouring fiscal restraint ― to focus on reflating the economy and redistributing wealth to households.

In a meeting of government and ruling party executives yesterday, Kishida announced his plan to spend around ¥56 trillion in the stimulus package, and compile an extra budget by year-end to fund the measures.

“The reflationary monetary policy and go-big-or-go-home fiscal policy pioneered by (former Premier) Shinzo Abe is now the orthodoxy,” said James Brady, an analyst at Teneo.

“Though Kishida has been known in the past for being somewhat hawkish, he appears set to continue the Abenomics paradigm for several more years.”

Bond yields ticked up yesterday after the Nikkei newspaper reported the new stimulus package will include ¥55.7 trillion worth of spending, much bigger than the ¥30-40 trillion estimated by markets.

“Inflating the size may have become the purpose with little discretion made on whether the spending would be effective,” said Takumi Tsunoda, senior economist at Shinkin Central Bank Research Institute. “It's a lot of wasteful spending.”

The total package, which includes funds that do not lead to immediate spending, will likely reach ¥78.9 trillion, according to a final version of the draft of the stimulus package obtained by Reuters.

The government will compile an extra budget of around ¥32 trillion to fund part of the cost, the draft showed.

The government will announce details of the package after it is signed off at a Cabinet meeting later today.

Japan has lagged other economies in pulling out of pandemic-induced doldrums, forcing policymakers to maintain massive fiscal and monetary support even as other advanced nations dial back crisis-mode policies. ― Reuters

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