Prime Minister Fumio Kishida on Tuesday instructed ministers to begin work on developing a new stimulus package by late April to soften the blow from rising energy, commodity and grain prices to households following Russia's invasion of Ukraine.
The package is also aimed at helping Japan's economy recover from the COVID-19 pandemic and will focus on four areas -- higher crude oil prices, stable food supplies, funding support for small and midsized companies and assistance to people in need -- according to Kishida, who delivered his directive at a Cabinet meeting.
Surging energy and grain prices have cast a shadow over the Japanese economy, which saw quasi-emergency antivirus curbs removed completely in the country only last week.
Japan has enacted a record 107.60 trillion yen ($881 billion) budget for the fiscal year starting Friday to support the economy.
To finance the stimulus, Kishida instructed the ministers to tap 5 trillion yen set aside in the fiscal 2022 budget for the government's pandemic response, as well as 500 billion yen in reserve funds allocated for other emergency spending needs.
The premier told parliament on Monday that the first priority is to deliver the spending plan as soon as possible and use the reserve funds for the to-be-compiled stimulus package.
Komeito, the junior coalition partner of the ruling Liberal Democratic Party, has called for securing enough funding to extend support to struggling consumers by drafting an extra budget.
In addition to higher commodity prices, the yen's recent depreciation, especially against the U.S. dollar, has raised concerns about higher import costs, a headache for resource-poor Japan, outweighing any benefits exporters gain from yen weakness that boosts their overseas profits when repatriated.
As a key item that could go into the package, Kishida's LDP and Komeito have floated the idea of distributing a one-off 5,000 yen payment to pensioners whose public pension benefits are set to fall by 0.4 percent in April from a year earlier.
But opposition lawmakers have criticized it as an attempt to woo senior voters ahead of an upper house election this summer.
Kishida has announced a one-month extension of subsidies to oil wholesalers to lower retail gasoline prices until the end of April.
Another contentious point is whether the government should reactivate a provision that would allow for a temporary cut in gasoline taxes as the prime minister vowed to consider "all possible options" in responding to the surge in energy costs.
The opposition Democratic Party for the People, in a rare move, approved the fiscal 2022 state budget in parliament, as Kishida had warmed to the idea of debating whether to invoke the clause, in line with the DPP's wish.
The "trigger clause" was frozen to secure tax revenue for use in reconstruction in the aftermath of the 2011 earthquake and tsunami that triggered the worst nuclear accident since Chernobyl at the Fukushima Daiichi power plant.
As Kishida aims to achieve wealth distribution as part of his push for a new form of capitalism, the government is also expected to prepare steps that will make it easier for smaller firms to pass on higher costs to consumers.
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