Japan PM announces $113 billion economic stimulus to combat inflation

In an effort to reduce the impact of inflation and bolster political standing, Japanese Prime Minister Fumio Kishida announced on Thursday a stimulus package worth 113 billion dollars. The proposed stimulus will be presented to the parliament for approval. Japan, like many other global economies, has witnessed price hikes due to the conflict in Ukraine, and the depreciation of the yen has further raised the cost of imports. Inflation, driven by increasing raw material expenses, has remained above the central bank’s 2 per cent target for over a year. This has hurt consumer spending and has cast uncertainty on the economic recovery, which has been delayed due to the aftermath of the COVID-19 pandemic. “This package is expected to total in the lower range of the 17 trillion yen (113.2 billion dollars) level,” Kishida said in a government meeting with ruling party officials. “The most important pillar of these comprehensive economic measures is to strengthen supply capacity to enhance the earning power of companies,” Kishida said. The government was expected to give more details later, but media reports said the programme was worth 37.4 trillion yen when including private sector spending. It involves income and residential tax reductions of 40,000 yen (266 dollars) per person, and 70,000 yen cash handouts to low-income households, according to public broadcaster NHK and other local media. Fuel subsidies will also be extended and there will be funds to promote investments in high-tech areas including the chip and space industries. The package will likely add to Japan’s debts, with the country already having, at 261 per cent in 2022, one of the world’s highest ratios of liabilities to gross domestic product. The government has already injected hundreds of billions of dollars into the economy over the past three years to support the recovery from the Covid-19 pandemic. Unlike other major central banks, which have raised interest rates, the Bank of Japan has stuck to its ultra-loose policy stance in the expectation that inflation will ease. This has added to pressure on the yen, one of the world’s worst-performing currencies this year. This week, it slipped to a new year-low against the dollar and its weakest reading against the euro since 2008. Japan’s top currency official indicated that the government was ready to intervene in the market to stop the yen’s fall. “We are seeing that the tide is turning from the vicious cycle of deflation – symbolised by low prices, low wages and low growth,” Kishida said on Thursday.“For the first time in 30 years, we are facing a great opportunity to move to a new economic stage,” he added. The rising cost of living is partly blamed for pushing down Kishida’s approval ratings, piling pressure on the prime minister to take steps to ease the pain on households.