Japan unveils $700bn in fresh economic stimulus
The prime minister is counting on his campaign promoting domestic travel to help the economy recover
Tokyo — Japanese Prime Minister Yoshihide Suga doubled down on his bet that promoting domestic travel will ensure the economy stays on a recovery path and that his tenure as premier will continue beyond a single year.
Despite a resurgence in Covid-19 infections that some observers have blamed on Suga’s “Go to Travel” campaign, on Tuesday the government unveiled a six-month extension of the measure as part of an economic stimulus package with an overall value of more than $700bn.
The latest package, to be funded by a third extra budget and 2021’s annual budget, also extends an enhanced furlough programme; provides support for medical facilities and homes for the elderly; and provides cash handouts for single-parent families, as Japan adds to an International Monetary Fund (IMF) tally of $12-trillion in global stimulus this year.
The package also looks to shore up corporate cash flows, and promote the development of green and digital technology, two areas that Suga is looking to make central themes of his tenure.
Suga said the measures would boost the economy by 3.6 percentage points but didn’t clarify the yardstick or time period he was referring to.
Suga is trying to shore up an economy that is expected to lose momentum after clawing back about half its pandemic losses during faster-than-initially estimated growth in the summer. With support for his cabinet falling amid the uptick in virus cases, Suga needs to balance the need to prop up growth against the risk of fanning the outbreak.
“Suga is taking a strong stance on Go to Travel, but I support him given that he must keep pursuing a balance between the pandemic and the economy,” said economist Yuichi Kodama at Meiji Yasuda Research Institute. Helping the economy through the private sector via the programme is a more efficient and less costly alternative to cash handouts, he said.
“Still, Suga had to inflate the overall size of the economic package because he’s being criticised for being behind on counter-virus measures,” Kodama said.
The resurgence in Covid-19 to record infection levels at home and abroad is already clouding the outlook despite improving exports, household spending, and bankruptcies that are down from a year earlier as companies take advantage of government and Bank of Japan (BOJ) loan programmes.
On Tuesday, sentiment data showed the outlook among consumer-orientated small businesses has plunged back to the level seen in May when Japan started to emerge from its state of emergency.
The cabinet office economy watchers survey often follows a similar trajectory to the BOJ’s closely watched Tankan survey of business sentiment, due out on Monday.
The stimulus package has an overall value of ¥73.6-trillion and fiscal measures — typically, loans, investment and spending — of about ¥40-trillion. The national cost of the public spending would reach ¥30.6-trillion over the next 15 months, with ¥19.2-trillion coming from an upcoming third extra budget, excluding special funds, the government said.
The latest measures are smaller in scale than the funding seen in two extra budgets so far this year. Those budgets added ¥58-trillion of additional spending equivalent to about 11.3% of the size of the economy. The extra outlays could take that figure closer to 14%.
Suga’s intention to continue with the travel programme suggests he expects the government will keep the virus under control and that the economy will benefit from the programme as the situation improves in 2021.
Up to mid-November, 52.6-million hotel nights had already been subsidised by 35% under the discount programme. Suga has repeatedly defended the subsidy programme, emphasising on Friday that about 9-million people work in travel and related industries in Japan.
Would you like to comment on this article or view other readers' comments?
Register (it’s quick and free) or sign in now.
Please read our Comment Policy before commenting.