Japan unveils new economic package as inflation, weak yen bite
Japan unveiled Friday a fresh economic package that includes 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, approved by the Cabinet in the afternoon, will 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 worth 3.5 yen per kilowatt-hour.
For city gas charges, the government will provide support worth 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.
Japan, a country known for its years of chronic deflation, has seen its inflation accelerate 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 steps targeting energy would help an average household reduce spending on utilities by 45,000 yen for the nine months to September next year and curb the rise in consumer inflation by around 1.2 percentage point, according to government estimates.
The package as a whole could have the effect of boosting Japan’s real gross domestic product by around 4.6 percent.
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.