Japan to approve new economic package as inflation, weak yen bite

Japan on Friday will unveil a fresh economic package that will include 29.1 trillion yen ($199 billion) in government spending, featuring steps to alleviate the pain of accelerating inflation and lift the economy out of the doldrums amid COVID-19, Russia's war against Ukraine and a weaker yen.

Faced with faltering public support, the government of Prime Minister Fumio Kishida is reducing household utilities bills as a major pillar of the package, as people tighten their purse strings due to higher fuel costs and more expensive food and everyday goods.

The total size of the stimulus package will likely reach 71.6 trillion yen, when spending by municipalities and companies is taken into account.

The massive spending plan comes despite the country's tattered public finances, with most of the necessary funds likely to be secured by issuing government bonds. The government is expected to submit an extra budget for fiscal 2022 through next March to the current parliamentary session.

Rising inflation has hit Japan while its economy recovers from the COVID-19 fallout much more slowly than in other advanced economies. Surging commodity prices and the yen's rapid fall of late are adding to its woes by inflating import costs for the resource-poor nation.

The government plans to lower household electricity bills by 7 yen per kilowatt-hour, meaning that an average household will save around 2,800 yen a month. Companies will receive support of 3.5 yen per kilowatt-hour, according to sources familiar with the matter.

For city gas charges, the government will provide support of 30 yen per cubic meter of consumption, enabling an average household to save about 900 yen a month.

The existing subsidies for oil wholesalers to lower retail gasoline and kerosene prices will be extended beyond December. They will be reduced from June next year, the sources said.

Japan, a country known for its years of chronic deflation, has seen its inflation speeding up at its fastest pace in over three decades. The gain has been mainly caused by surging energy, raw material and food prices amid Russia's war, with core consumer prices, a key gauge of inflation, topping 3 percent in September.

The impact of the yen's rapid depreciation has been increasingly felt, as the Bank of Japan maintains an ultralow rate policy while its global peers have already shifted to monetary tightening.

The economic package is also intended to ensure that the economy can reap the benefits of the weaker yen, by facilitating a recovery in inbound tourism and increased exports of Japanese farm products overseas.

To achieve more robust wage growth that would enable households to withstand the inflationary pressures, the government will include measures to promote it.

Wage growth is critical for the central bank's efforts to attain its inflation target and also for Kishida to realize his policy of wealth redistribution.

Other steps will include handing out 100,000 yen per mother expecting a child amid the rapid graying of the population and financially supporting the domestic output of grain, fertilizers and livestock feed after Russia's war raised supply concerns.

Japan's economy grew an annualized 3.5 percent in real terms in the April-June quarter, helped by the lifting of anti-coronavirus curbs that had weighed on demand. But economists expect growth likely slowed in the following quarter to September, with the global trend of monetary tightening raising recession concerns abroad.

Ruling party lawmakers have stepped up calls for the government to aim for 30 trillion yen and critics argue its size came first despite Kishida's stated stance of putting priority on both size and substance in drawing up the package.

Initially, the size of government spending was around 25 trillion yen. But the government decided to increase it to around 30 trillion yen at the last minute, taking heed of the ruling Liberal Democratic Party, which sought more.

The BOJ's purchases of government bonds have left borrowing costs depressed at rock-bottom levels. This environment has helped the government step up spending despite its debt being more than twice the size of the economy.

© Kyodo News