Japan prepares $89.7b stimulus package to combat inflation

Japan is considering allocating 13.9 trillion yen ($89.7 billion) from its general account for a new stimulus package to address the impact of rising prices on households, as per a government document reviewed by Reuters on Thursday.

The proposed spending exceeds last year’s 13.2 trillion-yen stimulus allocation, further straining Japan’s public finances, with debt currently double the size of its economy.

The package includes approximately 8 trillion yen for government investment and lending, along with local government expenditure, bringing the total package to 39 trillion yen when private funding is factored in, as shown in the document.

The figures were confirmed by three government and ruling party sources who requested anonymity as the matter has not been publicly disclosed.

The stimulus package will provide 30,000 yen ($193) to low-income households exempt from residential taxes and 20,000 yen per child for families, sources familiar with the matter said.

Significant obstacles were tackled on Wednesday when Japan’s ruling coalition reached an agreement with a key opposition party on the package draft.

“I’m not sure whether the economic package of this size is necessary now, when there are emerging signs that private consumption is picking up and real wage growth is turning positive,” said a senior economist at Daiwa Institute of Research.

The economist also expressed doubts about Japan’s ability to achieve its primary budget surplus goal for the next fiscal year. The government’s July estimate of a 0.8-billion-yen surplus in fiscal 2025 now appears increasingly challenging.

The Japanese government has set an assumed interest rate of 2.1 per cent for the next fiscal year, up from 1.9 per cent in the current year. This increase will elevate debt-servicing costs to 28.9 trillion yen, compared to 27 trillion yen in the current year.

Attribution: Reuters

Subediting: M. S. Salama