World’s third-largest economy takes hit amid global supply disruptions and fresh COVID-19 outbreaks.
Japan’s Prime Minister Fumio Kishida has unveiled a record-breaking stimulus package worth approximately 56 trillion Japanese yen ($490bn).
The government will compile an extra budget by the end of this year to fund the stimulus programme to deliver necessary aid to the public quickly, Kishida told a meeting of government and ruling party executives on Friday.
The plan includes 100,000 yen ($880) payments for those aged 18 years or younger, and aid for ailing businesses, Kishida and other politicians said.
“The package has more than enough content and scale to deliver a sense of security and hope to the people,” Kishida told reporters.
Tokyo’s move bucks a global trend towards withdrawing crisis-mode stimulus measures and places further strain on the country’s already tattered finances.
Spending has ballooned due to an array of payouts, including some criticised for being unrelated to the pandemic, and will likely lead to additional bond issuance this year, analysts said.
The substantial spending would underscore the resolve of Kishida – once considered a fiscal conservative – to focus on reflating the economy and redistributing wealth to households.
“The reflationary monetary policy and go-big-or-go-home fiscal policy pioneered by (former premier) Shinzo Abe is now the orthodoxy,” said James Brady, an analyst at Teneo.
“Though Kishida has been known in the past for being somewhat hawkish, he appears set to continue the Abenomics paradigm for several more years.”
The size of spending was much bigger than the 30-40 trillion yen ($262bn to $350bn) estimated by markets, mostly due to huge payouts to households and firms hit by the pandemic.
The government will compile an extra budget of about 32 trillion yen ($280bn) to fund part of the cost, according to a final version of the draft of the stimulus package obtained by the Reuters news agency.
It would include spending for defence of at least $6.7bn, Kyodo news reported, amid rising regional tensions over China’s growing economic and military power.
Critics of the package focused on its eye-popping scale.
“Inflating the size may have become the purpose with little discretion made on whether the spending would be effective,” said Takumi Tsunoda, a senior economist at Shinkin Central Bank Research Institute. “It’s a lot of wasteful spending.”
The government will announce details of the package after it is signed off at a cabinet meeting later on Friday.
Japan has lagged other economies in pulling out of pandemic-induced doldrums, forcing policymakers to maintain enormous fiscal and monetary support even as other advanced nations dial back crisis-mode policies.
Policymakers hope the new spending will help underpin the economy, which shrank more than expected in the third quarter due to the hit to consumption and exports from pandemic curbs and global supply disruptions.
Japan’s three gigantic spending packages to counter the pandemic have left it with outstanding long-term debt roughly double the size of its $5 trillion economy.