Japan set to unveil US$706b stimulus package

[TOKYO] Yoshihide Suga is set to unveil his first stimulus package as Japan's prime minister on Tuesday amid an increase in virus cases and a dip in support for his Cabinet that are an early test of his leadership.

The measures put together by Suga's government will have an overall value of US$707 billion, according to a final draft of the package obtained by Bloomberg.

The package will include around 40 trillion yen (S$513 billion) in fiscal measures, such as loans, investment and direct expenditure. The spending will be partly financed by 19.2 trillion yen from a third extra budget.

While revised growth figures out Tuesday morning are likely to confirm that the economy surged back in the third quarter at the fastest pace in 50 years, record infection numbers in recent weeks are likely to cool the consumer spending that helped drive the recovery in the summer. If voluntary restrictions on movement and activity continue to re-emerge in Japanese cities, the effect on spending could deepen.

Mr Suga faces the challenge of showing he can successfully maintain the economy's momentum while simultaneously containing the virus until vaccine options become readily available.

Failure to do so will likely consign him to a long list of stop-gap premiers in Japan who couldn't maintain enough support in their own party to stay in power beyond a year.

Boosting consumer spending will be tricky. A popular travel subsidy programme that Mr Suga has strongly defended as one of his most effective stimulus policies has come under fire for potentially worsening the spread of the virus.

A document seen last week by Bloomberg indicated that the government intends to extend the Go To Travel programme through June while adapting it in a flexible and appropriate way. It also set out a continuation of a boosted furlough programme, additional spending on health care, cash handouts to some single-parent families and support for firms adapting their business models to the coronavirus era.

The latest draft shows additional budgeted spending of 1.35 trillion yen on the travel programme.

The latest measures are smaller in scale than the funding seen in two extra budgets so far this year. Those budgets added 58 trillion yen of additional spending equivalent to around 11.3 per cent of the size of the economy.

Overall, the measures unveiled by Mr Suga's predecessor Shinzo Abe came to 234 trillion yen after including loans, investment and private sector initiatives.

Mr Suga's Liberal Democratic Party had called for a fresh package this time to help fill a 34 trillion yen shortfall of demand in the economy.

The breakdown for the 40 trillion yen of fiscal measures shows the following:

Around 5.9 trillion yen for virus containment measures

Around 18.4 trillion yen to support structural changes toward a post-corona economy

Around 5.6 trillion yen for disaster management, reduction measures.

Around 5 trillion yen of reserve funds will be used as needed in the year ending March 2021

Another 5 trillion yen of spending will draw on reserve funds to be allocated in next fiscal year's annual budget.

Including funding from special accounts, the extra budget spending on measures is worth 20.1 trillion yen.

Mr Suga said Friday that a new fund worth around 2 trillion yen to fund green technologies would also feature in the package, as well as support for digitalisation. The prime minister has made the upgrading of digital infrastructure and a 2050 carbon emissions goal central parts of his policy platform.

BLOOMBERG