Nov 21 2024: Japan is considering a new stimulus package worth 13.9 trillion yen ($89.7 billion) to support households affected by rising prices, as outlined in a government document reviewed by Reuters. This proposed package exceeds the 13.2 trillion yen allocated for last year’s stimulus and is expected to strain Japan’s already overburdened public finances, with the national debt currently standing at twice the size of its economy.
In addition to the general account spending, the package includes around 8 trillion yen for government investment and lending, and local government spending. With private funding added, the total package could reach 39 trillion yen. These figures were confirmed by several anonymous sources within the government and the ruling party.
Key components of the stimulus include 30,000 yen ($193) for low-income households exempt from residential taxes, and 20,000 yen per child for families with children. Japan’s ruling coalition cleared major hurdles regarding the package on Wednesday after agreeing with a key opposition party on the draft proposal.
However, some economists question the need for such a large stimulus at this point, especially as signs of a recovery in private consumption and positive real wage growth emerge. Takayuki Sueyoshi, senior economist at Daiwa Institute of Research, noted that the stimulus package could make it harder for Japan to achieve its goal of a primary budget surplus in the next fiscal year.
The government had estimated in July that Japan would achieve a surplus of 0.8 billion yen in fiscal 2025, with tax revenues slightly surpassing expenditures. Japan has traditionally used supplementary budgets to address emergency spending needs, but the scale of these budgets has increased since the COVID-19 pandemic, with last year’s stimulus reaching 13 trillion yen, much of which was funded by new debt.
The IMF has warned Japan to fund its additional spending within its budget rather than issuing more debt, as the Bank of Japan shifts away from its decade-long stimulus program. This change means that Japan can no longer rely on ultra-low borrowing costs to finance its debt. The government has set an assumed interest rate of 2.1% for the year starting next April, up from the current rate of 1.9%, raising debt-servicing costs to 28.9 trillion yen from 27 trillion yen.
