Japanese Prime Minister Fumio Kishida. Picture: GETTY IMAGES/TORU HANAI
Japanese Prime Minister Fumio Kishida. Picture: GETTY IMAGES/TORU HANAI

Japanese Prime Minister Fumio Kishida looks to shake off his cautious image and leave an early mark in his premiership with a bigger-than-expected stimulus package, aimed at shoring up a sputtering economy and launching his new vision of capitalism.

The measures will have an overall scale of about ¥79-trillion and record fiscal support of ¥56-trillion, and would boost real GDP by 5.6%. Kishida also emphasised that the economy must get back on track before any tightening of the nation’s purse strings.

“In a time of emergency we must put together what is needed to protect the lives and incomes of people,” he told reporters. 

“First we have prepared an economic stimulus policy, then we will discuss an extra budget employing all funding options including deficit bonds. Reviving the economy, then thinking about the fiscal situation: that’s the order,” he said.

With the measures, Kishida is looking to kick-start his premiership with a large-scale commitment to righting the economy and laying some of the groundwork for what he says is a new vision of capitalism. 

He promised he will look to attract more semiconductor manufacturers to Japan including makers from the US as he looks to shore up domestic chip production.

The unexpected boldness of the stimulus risks backfiring if markets and voters judge it to be excessive while the economy is already expected to pick up from its summer contraction.

Same mistake

“The government came up with big economic packages last year, too, but they ended up not being able to use the money or having to repackage past programmes,” said Mari Iwashita, chief market economist at Daiwa Securities. 

“They make programmes for the money, but the money won’t get used unless they also streamline laws and infrastructure. Without working on that, Kishida could just be repeating the same mistake,” she said.

Stock market investors gave the stimulus a lukewarm reception, with shares paring losses when initial reports of its size emerged on Thursday. The Topix finished up 0.4% Friday.

Bond yields initially jumped on Thursday amid concern that the bigger package would lead to more issuance of government debt, but shed about half those gains on Friday. The yen continued to weaken slightly against the dollar.

Support for Kishida’s cabinet has largely been steady since he took over the leadership of the ruling Liberal Democratic Party in September and led the long-ruling coalition into a surprisingly strong election victory weeks later, beating off a challenge from a left-leaning group of opposition parties. He must now gird for an upper house election due in 2022.

Opinions varied

A poll carried out by broadcaster FNN on November 13-14 found approval of his cabinet at about 63%, little changed on a previous poll in October. About 60% of respondents said they were satisfied with the government’s handling of the pandemic. 

But opinions varied on a plan to hand out cash to families with children aged 18 or under that is set to be included in the stimulus package. Only 20% approved of the $875 per child handout plan as it stands, with almost 34% of respondents in the rapidly ageing country saying there was no need for a financial support plan focused only on children.

“I think he had the upper house election in mind when putting together this large package,” said Yu Uchiyama, a professor of political science at the University of Tokyo. “But if you ask whether this achieves a new capitalism, that’s doubtful. Rather than something new, these are old economic policies, very much the traditional policies of the LDP.”

Kishida’s fiscal measures — a combination of spending, investment and loans — will be bigger than the two pandemic packages last year and are about 40% larger than figures reported in local media as little as a week ago.

The larger-than-expected fiscal support amounts to more than 10% of real GDP, a big commitment from a government that is already carrying the heaviest public debt load among advanced economies. That said, much of the spending could be covered by recycling cash from earlier stimulus measures that has yet to be used.

The latest government package comes after figures showed the economy shrinking for the fifth time in the last eight quarters. Japan’s real GDP is still smaller than it was six-and-a-half years ago, after its recovery sputtered on a summer resurgence of Covid-19 and a shortage of semiconductors that laid bare the country’s supply chain vulnerability.

Still, economists already forecast the economy would recover this quarter as virus restrictions are lifted and activity picks up.

Other components of the package include: 

  • Up to ¥2.5-million each in handouts to small, medium-sized companies.
  • Support for businesses struggling with rising fuel prices.
  • Digital initiatives to revitalise regional economies.
  • Resumption of domestic Go-To travel subsidies.

Bloomberg News. More stories like this are available on bloomberg.com

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