Japan will spend 29.1 trillion yen ($199 billion) under an economic package unveiled Friday, featuring steps to alleviate the pain of accelerating inflation and lift the economy out of the doldrums amid COVID-19, Russia's war against Ukraine and a weaker yen.
Faced with faltering public support, the government of Prime Minister Fumio Kishida is reducing household utility bills as a major pillar of the package. It estimates the average household will save 5,000 yen a month from January to September.
The total size of the stimulus package, approved by the Cabinet in the afternoon, will reach 71.6 trillion yen when spending by municipalities and companies is taken into account.
The massive spending plan comes despite the country's tattered public finances, with most of the necessary funds likely to be secured by issuing government bonds.
To finance the envisaged spending, the government is expected to submit an extra budget for fiscal 2022 through next March to the current parliamentary session.
"We are targeting energy prices, a major factor behind the recent inflation and curb rising prices in a visible way," Kishida told a press conference as he explained the details of the package.
"We will spend 6 trillion yen in total on energy-related steps and extending support worth 45,000 yen to each household," he added.
Rising inflation has hit Japan while its economy recovers from the COVID-19 fallout much more slowly than in other advanced economies.
Surging commodity prices and the yen's rapid fall of late are adding to its woes by inflating import costs for the resource-poor nation.
The government plans to lower household electricity bills by 7 yen per kilowatt-hour, meaning that an average household will save around 2,800 yen a month. Companies will receive support worth 3.5 yen per kilowatt-hour.
For city gas charges, the government will provide support worth 30 yen per cubic meter of consumption, enabling an average household to save about 900 yen a month.
Existing subsidies for oil wholesalers to lower retail gasoline and kerosene prices will be extended beyond December. They will be reduced from June next year.
Japan, a country known for its years of chronic deflation, has seen its inflation accelerate at its fastest pace in over three decades.
The gain has been mainly caused by surging energy, raw material and food prices amid Russia's war, with core consumer prices, a key gauge of inflation, topping 3 percent in September and exceeding the Bank of Japan's inflation target of 2 percent.
The energy-related measures will help curb the rise in consumer prices by around 1.2 percentage points, while the broader economic package could boost Japan's real gross domestic product by around 4.6 percent, according to government estimates.
The impact of the yen's rapid depreciation has been increasingly felt, as the BOJ maintains an ultralow rate policy while its global peers have already shifted to monetary tightening.
"Speculative and rapid currency movements are not desirable for anyone. The government will be keeping close tabs on developments in the foreign exchange market in communication and coordination with the BOJ," Kishida said.
"At the same time, we need to strengthen our economy," he said. "We have steps to support export-oriented small and midsize companies, encourage firms to transfer higher costs, and boost inbound tourism."
To achieve more robust wage growth, which would enable households to withstand inflationary pressures, the government included support for small and midsize companies, as well as steps to promote the acquisition of new skills by workers.
"Annual wage negotiations next spring will be a critical point to see whether Japan can enter a virtuous cycle of growth and redistribution," Kishida said.
Wage growth is critical for the central bank's efforts to attain its inflation target and Kishida's push for a new form of capitalism.
Other steps include handing out 100,000 yen per woman expecting a child amid the rapid graying of the population and financially supporting the domestic output of grain, fertilizers and livestock feed after Russia's war raised supply concerns.
Japan's economy grew an annualized 3.5 percent in real terms in the April-June quarter, helped by the lifting of anti-coronavirus curbs that had weighed on demand. But economists expect growth likely slowed in the following quarter to September, with the global trend of monetary tightening raising recession concerns abroad.
Initially, the size of government spending was around 25 trillion yen. But the government decided to increase it to about 30 trillion yen at the last minute, taking heed of calls from the ruling Liberal Democratic Party, which sought more.
The BOJ's purchases of government bonds have left borrowing costs depressed at rock-bottom levels. This environment has helped the government step up spending despite its debt being more than twice the size of the economy.
