A stimulus package worth 21.3 trillion yen ($135.4 billion) was adopted by the Japanese Cabinet on Friday to alleviate the effects of rising prices and boost the economy through expansionary government spending.
Prime Minister Sanae Takaichi pledged to increase government spending after taking office last month, amid worries that doing so might impede efforts to reduce Japan’s national debt, which is roughly three times the size of its GDP.
Reporters were informed by Takaichi that the package intends to promptly fulfill her commitments.
“With prudent spending, we will transform concerns into optimism and attain a robust economy,” she declared.
“What we should do now is not to cause harm through excessively contractionary policies, but to strengthen the national power through expansionary spending and wise spending,” she stated.
The spending plan is intended in part to mitigate the effects of increased U.S. tariffs on Japanese exports to the United States under President Donald Trump, and it greatly surpasses those in the years before the COVID-19 pandemic.
The government reported on Friday that while shipments to the rest of the globe increased 3.7%, in part due to increased exports to the rest of Asia, exports to the United States decreased in October for the seventh consecutive month.
While the yen has dropped to almost its lowest point of the year, investors have been selling off Japanese government bonds in recent days, driving yields higher.
Following Takaichi’s remarks that infuriated Beijing and prompted retaliatory actions, such as a warning to Chinese visitors and students not to visit Japan, share prices have also been negatively impacted by the heightened tension with China.
On Friday, the benchmark Nikkei 225 index dropped 2.4%, mostly as a result of significant selling of technology stocks.
Subsidies for energy expenses, a reduction in the gasoline tax, and other measures to assist customers struggling with the rising cost of living are all part of the extravagant spending package adopted on Friday.
The government announced on Friday that core inflation in October, excluding volatile food prices, was 3%, exceeding the central bank’s objective of about 2%.
One-time cash handouts of 20,000 yen (about $130) per kid, which would need approximately 400 billion yen ($2.6 billion) in government spending, and the distribution of rice vouchers or other coupons worth 3,000 yen (almost $20) per person by local authorities are examples of specific subsidies.
To finance the package, Takaichi’s government needs to create a supplemental budget and win parliamentary approval by the end of this year.
Her ruling coalition, which lacks a majority in both the upper and lower houses of the Diet, faces a significant obstacle as a result.
Takaichi took over for former Prime Minister Shigeru Ishiba, who was essentially overthrown by his opponents in the ruling party after losing significant elections as a result of voters’ discontent with his minority government’s sluggish reaction to skyrocketing prices and lagging salaries.
Takaichi, the country’s first female prime minister, has so far received a lot of support from the public, partly due to hopes that she will upend the country’s gerontocratic political system.
However, to enact her supplemental budget and spending plan, she must work with opposition parties because her administration is a minority.
Experts and opposition parliamentarians have questioned whether the package will succeed in achieving its objectives.
One of them is to reduce energy expenses and marginally lower consumer prices. Since higher prices would typically result from greater demand from other stimuli, any effect on inflation is anticipated to be temporary.
According to the Cabinet Office, the package is also intended to increase Japan’s GDP by 24 trillion yen ($155 billion), or an annualized rate of 1.4%.
The fourth-biggest economy in the world, Japan’s, shrank by 1.8% annually between July and September.
