Japan’s Kishida orders stimulus as analysts warn of overspending

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Japanese Prime Minister Fumio Kishida on Friday asked the government to come up with an economic stimulus package by the end of October to help soften the impact of inflation, as economists warned against overspending.

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(Bloomberg) – Japanese Prime Minister Fumio Kishida on Friday asked the government to come up with an economic stimulus package by the end of October to help soften the impact of inflation, as economists warned against spending excessive.

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Kishida’s order came during the morning cabinet meeting, chief spokesman Hirokazu Matsuno told reporters on Friday. The measures will fight price hikes, encourage wage increases and accelerate Kishida’s drive to transform capitalism in Japan, Matsuno said.

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The Prime Minister has already extended existing price relief measures, including petrol subsidies and price caps on imported wheat earlier this month, as well as the addition of cash grants for low-income households. income and grants from local governments.

Matsuno did not specify the size of the measures, leaving it uncertain how much the government will spend at a time when the economy shows signs of a resilient recovery. A supplementary budget to fund the expenses will follow soon, he added.

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“There seems to be talk of spending 30 trillion yen ($207 billion) but I think in reality what is really needed is only 5 or 6 trillion,” said Shinichiro Kobayashi, an economics economist. head at Mitsubishi UFJ Research & Consulting. “Japan’s economy is not on the brink of crisis, so what we need now are economic measures to help those who are suffering.”

Read more: Japan’s economy shows signs of resilience amid stimulus talks

The order comes as financial markets are still reeling after the UK government’s mini budget last week laid out a wide range of tax cuts requiring heavy borrowing in an economy suffering from the highest inflation in decades. decades.

While Japan is not expected to shock the markets with a series of massive spending, the extra spending will add to the higher indebtedness of developed economies and add to the feeling that the country is overly dependent on additional budgets financed at interest rates at the lower. .

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“Talking about making the stimulus package big as if it were a competition would be an act of extreme irresponsibility,” said economist Atsushi Takeda of the Itochu Research Institute. “It would show that they just see the chaos in the UK as some sort of fire across the river, or they don’t look at it at all.”

The central government has already put in place a supplementary budget of 2.7 trillion yen earlier this year to fund efforts to control the impact of inflation. Late last year, shortly after taking over as Japan’s leader, Kishida also rolled out a larger-than-expected stimulus package with fiscal support worth 56 trillion yen.

Explaining the need for the latest stimulus, Kishida said Thursday that rising energy and food prices are hitting households and fears of a global recession remain a risk for Japan’s economy.

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He said it is possible that electricity prices will rise by up to 30% in the spring. He said he was looking to create a new system to smooth out extreme swings in electricity prices, without giving further details.

Matsuno said specific measures will include additional support for families and businesses hit by rising prices, and plans to reduce dependence on fossil fuels and chemical fertilizers. Additional incentives will also be considered to encourage salary increases, he said. Kishida is expected to deliver a policy speech in parliament on Monday, where he could give more details about his stimulus plans.

The focus on inflation in the package shows that the pain of rising costs is now seen as a bigger economic threat than the pandemic. Kishida’s popularity has also plunged in recent weeks, making it essential for the prime minister and his ruling party to bolster their support with an economic stimulus.

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As Japan fully reopens its border on Oct. 11, Kishida is reportedly targeting 5 trillion yen in annual spending by overseas visitors as the weak yen is expected to boost their purchasing power.

The Japanese currency weakened against the dollar as the BOJ continues to keep interest rates low while the Federal Reserve tightens policy. The historic decline of the yen has reduced the purchasing power of domestic consumers by making energy and food imports more expensive.

The yen has lost around 20% against the dollar this year despite Japan’s first intervention in 24 years to support it last week.

(Updates with more details, comments from Matsuno, economists)

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