Japan’s new Prime Minister Sanae Takaichi is drafting an economic stimulus package expected to surpass last year’s $92 billion, aiming to ease the burden of inflation on households, government sources familiar with the plan said on Wednesday.
The package of more than 13.9 trillion yen ($92.19 billion) is Takaichi’s first major economic initiative since the advocate of big fiscal spending took office on Tuesday, reflecting a commitment to what she calls “responsible proactive fiscal policy.”
It will be built around three main pillars: measures to counter inflation, investment in growth industries, and national security, the sources told Reuters, declining to be identified because the matter is still private.
Japan’s benchmark Nikkei erased losses and turned higher on Wednesday after the report, while the yen pared morning gains and was little changed.
Investors are closely watching Takaichi’s spending plans as Japan is one of the world’s most indebted economies.
As part of its core inflation relief measures, the Takaichi administration plans to swiftly abolish the provisional gasoline tax rate.
It also aims to expand local government grants, with a focus on supporting small and medium-sized companies that are unable to benefit from existing tax incentives for wage hikes.
The package will also include investments in growth sectors such as artificial intelligence and semiconductors as the government focuses on strategic economic development.
The exact scale of the package is still being finalized, the sources said. It could be announced as early as next month.
It was too early to talk about the size of the upcoming extra budget, Japan’s new finance minister, Satsuki Katayama, said at a news conference on Wednesday, but it should be of sufficient scale to cover all measures needed.
To fund the measures, the government is moving ahead with drafting a supplementary budget for the current financial year through March, with an eye toward passing it during the upcoming extraordinary parliament session.
If additional spending exceeds initial expectations, the government may need to issue deficit-covering bonds, raising questions about how to balance economic growth with fiscal discipline.
The plan “is consistent with Takaichi’s policy list during the campaign (in the ruling party’s leadership race),” said Shigeto Nagai, head of Japan economics at Oxford Economics.
It’s not so different from previous administrations, which have used all the additional tax revenue from higher inflation for large supplementary budgets to support vulnerable households, rather than working toward its goal of achieving a primary fiscal surplus, Nagai added.
Takaichi was elected Japan’s first female prime minister on Tuesday. The parliament vote drove down the yen and bond yields on expectations that Takaichi’s presence could delay further interest rate hikes by the Bank of Japan (BOJ).
A longtime advocate of late Prime Minister Shinzo Abe’s “Abenomics” stimulus policies, Takaichi has called for higher spending and tax cuts and pledged to reassert government sway over the central bank, which is weighing more interest rate hikes and will hold its next policy meeting on Oct. 29-30.
Monetary policy is part of a broader economic policy the government holds final responsibility for, she told a news conference on Tuesday, adding that specific means of monetary policy were up to the BOJ to decide.
The Daily Sabah Newsletter
Keep up to date with what’s happening in Turkey,
it’s region and the world.
SIGN ME UP
You can unsubscribe at any time. By signing up you are agreeing to our Terms of Use and Privacy Policy.
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
AloJapan.com