Japan To Cushion Inflation With Big Support To Companies

Japanese Prime Minister Fumio Kishida expressed on Thursday November 1 that his administration will spend more than 17 trillion yen, or $113 billion, on a package of measures to cushion the financial blow from inflation, which will incorporate tax cuts and residential taxes as well as subsidies to curb gasoline and utility bills..

To finance part of the spending, the government will compile a supplementary budget for the current fiscal year of 13.1 trillion yen, Kishida told reporters. Including spending by local governments and state-backed loans, the size of the package will total 21.8 trillion yen.

“Japan’s economy is seeing a big opportunity open up to shift to a new stage for the first time in three decades,” as it exits from a deflationary spiral. That’s why we need to help companies boost profitability and earn revenues to boost wages,” Kishida told a meeting of government and ruling party executives.

Inflation, powered by increasing expenses of unrefined substances, has kept above the central bank’s target of 2% for more than a year, obfuscating on consumption and clouding the outlook for an economy making a delayed recovery from scars left by Covid-19.

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 families.

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With increases in wages proving too slow to offset rising prices, Kishida had said the government will cushion the blow by returning to households some of the expected increase in tax revenues generated by solid economic growth.

Analysts, however, doubt whether the roughly 5 trillion yen to be spent on tax cuts and payouts would do much to boost consumption and Japan’s economic growth.

Takahide Kiuchi, a former Bank of Japan board member who is currently an economist at Nomura Research Institute, expects the measures to lift gross domestic product by just 0.19% for the year.

“It’s a policy that isn’t very cost effective,” he said. “With Japan’s output gap having turned positive in April-June, the economy doesn’t need a stimulus package in the first place.”

Japan’s economy extended an annualized 4.8% in the subsequent quarter, the biggest inflation in over two years, as an end to Covid-19 pandemic curbs boosted consumption. But falling real wages in July adds to doubts over central bank projections that domestic demand can keep the country on a steady recovery path.