TOKYO, Nov. 19 (BNA): Japan unveiled a record $490 billion spending package on Friday to cushion the economic blow from the COVID-19 pandemic, defying the global trend toward withdrawing stimulus measures in crisis mode and adding pressure on its already shattered finances. .
Reuters reported that spending was inflated by a range of payments including those that have been criticized for not being linked to the pandemic, such as cash assistance to families with young adults aged 18 or younger, likely to lead to additional bond issuance this year.
The massive spending will underscore Prime Minister Fumio Kishida – who was once considered a fiscal conservative – determination to focus on reviving the economy and redistributing wealth to families.
“Contractionary monetary policy and major or major fiscal policy led by (former Prime Minister) Shinzo Abe are now orthodox,” said James Brady, analyst at Teneo.
“Although Kishida has been known in the past to be a bit hawkish, he seems ready to continue with the Abenomics model for several more years.”
The package, which was finalized at a cabinet meeting on Friday, included 55.7 trillion yen ($490 billion) in spending on items ranging from cash payments to households, support for businesses affected by the coronavirus, and reserves earmarked for emergency spending on the pandemic.
The spending was much larger than the 30-40 trillion yen estimated by the markets, and will mostly be financed by an additional budget of about 32 trillion yen collected this year. The rest is likely to be funded from next year’s budget.
The total package, which includes funds that do not lead to immediate spending, is likely to be 78.9 trillion yen.
“We will mobilize all available tools to finance the package, including the issuance of bonds covering the deficit,” Kishida said in a group interview. He did not say how much debt could be issued.
Critics of the package focused on its striking size.
“Perhaps amplifying volume is the goal with little judgment on whether spending will be effective,” said Takumi Tsunoda, chief economist at the Shinken Institute for Central Bank Research. “It’s a lot of waste.”
Japan has lagged behind other economies in pulling out of the pandemic-induced recession, forcing policy makers to maintain massive fiscal and monetary support even as other developed countries roll back crisis-setting policies.
Policy makers hope the new spending will help support the economy, which contracted more than expected in the third quarter as consumption and exports were hit by pandemic restrictions and global supply disruptions.
Japan’s three massive pandemic spending packages have left Japan with long-term debt owed twice the size of its $5 trillion economy.
NS