Japan's stimulus package spending to hit record 55.7t yen

Tokyo

JAPAN'S new stimulus package will include a record spending of about 55.7 trillion yen (S$662.4 billion) due to huge payouts to cushion the economic blow from the Covid-19 pandemic, the Nikkei newspaper reported on Thursday (Nov 18).

The massive spending would underscore Prime Minister Fumio Kishida's resolve to focus on reflating the economy and redistributing wealth to households and small firms still suffering from the fallout caused by the coronavirus pandemic.

The government will likely issue new debt to finance part of the spending, which would exceed the two big packages compiled last year, the paper said without citing sources.

The total package, which includes funds that do not lead to immediate spending, will likely reach 78.9 trillion yen, the Nikkei said.

Government and ruling party officials are finalising details of the package, which is to be unveiled Friday.

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"Payouts and subsidies ought to be delivered as quickly as possible," a government source said, adding that the boost to economic growth from the package would likely start to appear in the January-March quarter.

Japan's Nikkei share average turned positive after the Nikkei report, as the size of spending was much bigger than the up to 40 trillion yen expected by markets. It closed down 0.3 per cent at 29,598.66 on Thursday.

But analysts were sceptical on whether the stimulus can give a lasting boost to stocks and the economy.

Shingo Ide, the chief strategist at NLI Research Institute, said: "What's important is the content of the package, such as how much of it is related to a growth strategy. If that portion is small, stock markets won't look at it very favourably."

Japan has lagged other economies in pulling out of the pandemic-induced doldrums, forcing policymakers to maintain massive fiscal and monetary support even as other advanced nations dial back crisis-mode policies. Policymakers hope the new spending will underpin the economy, which shrank more than expected in the third quarter due to the hit to consumption and exports from pandemic curbs and global supply disruptions.

The package will mainly consist of cash payouts to families with children, low-income households and businesses under strain, said a draft seen by Reuters. Markets are focusing on the amount of debt the government will issue under this year's extra budget.

Hiroaki Muto, an economist at Sumitomo Life Insurance, said: "Even if the government issues new debt, it will likely be around 20 trillion yen. That's an amount that can be smoothly absorbed by markets.

"The Bank of Japan is controlling the yield curve, so interest rates won't rise, which means it is essentially committing to buying an unlimited amount of government debt."

Japan has already deployed pandemic-related stimulus worth a combined US$3 trillion - roughly two-thirds the size of its economy - that added strain to its tattered finances. REUTERS