Japan unveiled a $48.6-billion economic package on Tuesday that includes handouts for low-income families to help cushion the impact of rising prices and energy costs on households.
“We must avoid at all costs letting surging oil and prices sabotage our efforts for the recovery of economic and social activity from the coronavirus pandemic,” Prime Minister Fumio Kishida said in unveiling the 6.2 trillion yen package.
Soaring energy costs linked to Russia’s invasion of Ukraine, and other price rises are squeezing Japanese consumers and businesses, and the decision to unleash more spending comes ahead of a July parliamentary election.
At the heart of the package is a plan to distribute cash handouts of 50,000 yen ($391) per child to low-income households.
It is also expected to include measures such as expanded fuel subsidies and the extension of a zero-interest loan programme.
The spending will be financed by tapping into reserve funds allocated for emergency spending, and with money from other budgets already put together this year.
That makes it “misleading” to describe the entire package as new spending, Takahide Kiuchi, executive economist at Nomura Research Institute, said in a note.
Some analysts warn the package could have a relatively limited impact because the measures are short-term and will reach a relatively small number of households.
Kiuchi estimates it will shore up GDP by 0.06 percent, while Japan’s government says the state funds paired with private sector investment will have an economic impact equivalent to 13.2 trillion yen.
Japan’s core consumer prices rose at the fastest rate in over two years in March, though the 0.8 percent increase year-on-year remains far below inflation in many other developed economies.
It is also well short of the target 2.0 percent viewed as necessary to turbocharge the world’s third-largest economy.
The package comes with the yen weakening to its lowest level against the dollar in 20 years, as the gap widens between Japan’s ultra-loose monetary policy and US tightening.
Though the weak currency benefits Japanese exporters, it is a concern given Japan’s dependency on energy imports, though the government has so far ruled out direct intervention.
