Japan's Cabinet approved Tuesday an extra budget for the current fiscal year to spend 29.09 trillion yen ($199 billion) on an economic package designed to mitigate the pain on households and businesses of rising prices, exacerbated by a weaker yen.
To secure the necessary funding, the government will issue bonds worth 22.85 trillion yen, putting fiscal restoration on the backburner further despite its debt already being more than twice the size of its economy.
The key feature of the economic package is reducing utility bills for Japanese households. The average household would save around 45,000 yen between January and September when the package, intended to lower electricity and city gas prices on top of gasoline and kerosene, is implemented.
The government is expected to submit the extra budget plan to parliament in mid-November to have it approved before the current session ends in early December. Work to compile a separate draft budget for the next fiscal year from April is set to accelerate toward year-end.
The total size of the economic package will be 71.6 trillion yen, which includes 39.0 trillion yen in fiscal spending by the government and local municipalities.
Faced with a downtrend in public support ratings, Prime Minister Fumio Kishida is underscoring his administration's efforts to cushion the blow to households from rising consumer prices, which jumped 3 percent in September, a three-decade high.
"We should not hesitate to spend as needed in times of emergency to protect the livelihoods of people in Japan," Finance Minister Shunichi Suzuki said after the budget plan was approved by the Cabinet.
"It's also true that our nation's fiscal situation is becoming all the more severe," Suzuki said, adding that crisis-mode "massive" spending cannot last long, with Japan's fiscal health in dire straits.
Total spending in the current fiscal year will come to 139.22 trillion yen, marking the third-largest amount on record.
Critics say the government has been focused on boosting the size of the stimulus package first rather than examining its substance.
The size of government spending was initially planned for around 25 trillion yen. But it increased to around 29.1 trillion yen, largely due to increased reserve funds, after the government took heed of calls from the ruling Liberal Democratic Party demanding more.
The second supplementary budget of the current year includes 4.74 trillion yen in reserve funds, which are earmarked for future emergency spending without specifying their use in advance.
The government estimates that the energy-focused steps would help lower the country's core consumer inflation by 1.2 percentage point. As Japan relies heavily on energy imports to meet domestic needs, higher fuel costs come as a blow to households at a time of a nascent economic recovery from COVID-19.
With most of its government bonds held by domestic players, Japan differs from Britain, whose proposed tax cuts and increased spending apparently called into question its fiscal credibility and prompted investors to sell British government bonds.
The Bank of Japan owns over 40 percent of outstanding government debt as part of its monetary easing. The central bank has kept short-term and long-term interest rates at rock-bottom levels and is in no hurry to change its stance, even as other major central banks have been raising interest rates to tame inflation.