Japan launches record stimulus package, thwarting global downward trend

  • Government announces stimulus package with spending of $ 490 billion
  • Spend size far exceeds market expectations
  • The government is planning a supplementary budget worth Y32 trln to finance the costs
  • Huge spending adds to rising public debt in Japan

TOKYO, Nov. 19 (Reuters) – Japan on Friday unveiled a record $ 490 billion spending program to cushion the economic blow from the COVID-19 pandemic, bucking a global trend to withdraw recovery in crisis mode and the worsening of its already tattered finances.

Spending has exploded due to a range of payments, including those criticized for not being linked to the pandemic, such as cash distributions to households with young people aged 18 and under, and will likely lead to a additional bond issuance this year.

The massive spending would underscore Prime Minister Fumio Kishida’s determination – once considered a budget conservative – to focus on reflation of the economy and redistribution of wealth to households.

Register now for FREE and unlimited access to reuters.com

Register now

“The reflationary monetary policy and the ‘go big or go home’ fiscal policy launched by (former prime minister) Shinzo Abe are now orthodoxy,” said James Brady, analyst at Teneo.

“Although Kishida has been known in the past to be somewhat hawkish, he seems poised to continue the Abenomics paradigm for several years.”

The package, finalized at a cabinet meeting on Friday, included 55.7 trillion yen ($ 490 billion) in spending on items ranging from cash payments to households, subsidies to businesses affected by COVID, and earmarked reserves. emergency expenses in the event of a pandemic. Read more

The amount spent was well over the 30-40 trillion yen estimated by the markets, and will be primarily funded by an additional budget of around 32 trillion yen which will be compiled this year. The rest will likely be funded from next year’s budget.

A pedestrian wearing a protective mask crosses a street, amid the coronavirus disease (COVID-19) outbreak, in the business district of Tokyo, Japan, May 21, 2020.REUTERS / Kim Kyung-Hoon

The total amount, which includes funds not involving immediate expenses, is likely to reach 78.9 trillion yen.

“We will mobilize all the tools available to finance the package, including the issuance of bonds covering the deficit,” Kishida said in a group interview. He did not say how much debt could be issued.

Reviews of the packaging have focused on its jaw-dropping scale.

“Inflating size may have become the goal with little leeway in spending efficiency,” said Takumi Tsunoda, senior economist at the Shinkin Central Bank Research Institute. “That’s a lot of unnecessary expense.”

Japan has lagged behind other economies in extricating itself from the pandemic-induced slump, forcing policymakers to maintain massive fiscal and monetary support even as other advanced countries scale back their crisis policies.

Policymakers hope the new spending will help support the economy, which shrank more than expected in the third quarter due to the impact on consumption and exports of pandemic brakes and global supply disruptions. Read more

Japan’s three massive spending programs to fight the pandemic have left it with overdue long-term debt roughly double the size of its $ 5,000 billion economy.

($ 1 = 114.3100 yen)

Register now for FREE and unlimited access to reuters.com

Register now

Reporting by Leika Kihara and Tetsushi Kajimoto; Additional reporting by Takaya Yamaguchi, Daniel Leussink and Kantaro Komiya; Editing by Ana Nicolaci da Costa, Stephen Coates and Kim Coghill

Our standards: Thomson Reuters Trust Principles.

Comments are closed.