FILE PHOTO: Light is cast on a Japanese 10,000 yen note as it's reflected in a plastic board in Tokyo, in this February 28, 2013 picture illustration. REUTERS/Shohei Miyano
November 26, 2021
By Tetsushi Kajimoto
TOKYO (Reuters) -Japan’s cabinet approved its first extra budget for this fiscal year on Friday with spending worth $315 billion to cushion the blow from the COVID-19 pandemic, as the country keeps its stimulus taps open even as other economies close theirs.
Featuring cash payouts to households with children, financial support for corporations and tourism discounts, the extra budget contains some elements of populist spending despite the image of Prime Minister Fumio Kishida as a fiscal hawk.
Kishida is prioritising economic growth over fiscal reform near-term to encourage citizens to share the fruits of growth under a wealth distribution policy dubbed “new capitalism.” He remains under pressure to top up spending in the run-up to upper house elections next summer.
“Japan is in the midst of a coronavirus crisis and the stimulus package has been compiled based on our stance of mobilising necessary fiscal spending without hesitation,” Finance Minister Shunichi Suzuki told reporters after a cabinet meeting.
“It’s true that will cause underlying fiscal conditions to become even more severe. We must continue efforts on fiscal reform.”
The extra 36 trillion yen ($315.68 billion) in spending will be financed by additional government bonds worth 22 trillion yen, straining the industrial world’s heaviest debt burden.
Kishida’s government will next month compile an annual state budget for fiscal 2022/23, aiming to implement seamless spending over a 16-month period to underpin the world’s third-largest economy.
The budgets are also targeted at boosting growth in the green and digital sectors and strengthening chip factories, while the ruling bloc on Friday began debate on an annual tax code revision focused on measures such as tax incentives to encourage wage hikes.
However, analysts doubt the extra budget will boost growth.
“Fiscal spending of the package makes up 10.3% of nominal GDP. If economic impacts push up real GDP only by 5.6% as per government expectations, it cannot be called wise spending,” said Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities. “This is a failure as a boost to growth.”
The government earmarked 774 billion yen for boosting advanced chip output in the extra budget, including a fund worth 617 billion yen to back production bases over multiple years.
Kishida’s cabinet last week unveiled the 79 trillion yen economic package with a record 55.7 trillion yen in spending.
The finance ministry will keep market issuance of interest-bearing government bonds (JGB) unchanged as it reviews its issuance plan for this fiscal year following new stimulus.
Of the record 221.4 trillion yen of market issuance, 138.2 trillion yen of interest-bearing bonds will be left unchanged for issuance for the fiscal year ending in March 2022.
($1 = 114.0400 yen)
(Editing by Sam Holmes and Jacqueline Wong)