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Japan will launch 350 billion U.S. dollars stimulus measures in response to Western countries spending cuts

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After the government spends heavily to fight the coronavirus pandemic, the risk of overheating the economy may cause more and more concerns in the United States and Europe, but Japan is working to solve the opposite problem.

Since the outbreak of Covid-19 in 2020, Asia’s largest advanced economy has spent 88 trillion yen (US$770 billion) on fiscal stimulus, accounting for nearly 17% of GDP.

But as many parts of the world are recovering amid rising inflation concerns and weighing options for easing stimulus measures, Japanese Prime Minister Fumio Kishida is preparing to directly distribute 100,000 yen ($872) in cash to families with children under 18 years of age. The economic plan will be announced on Friday.

However, the challenge is that the stimulus checks issued in the past have little effect on boosting consumption and inflation in Japan, and there is little sign that the results will be different this time.

However, concerns about additional stimulus measures are mainly due to Japan’s huge debt burden that has reached 266% of its GDP.

Many families with children will receive a check for $872 © Vincenzo Pinto/AFP via Getty Images

The Governor of the Bank of Japan Haruhiko Kuroda predicts that the inflation rate will only rise to about 1% by the middle of next year, so concerns about overheating are less serious.

Analysts said that the greater focus of the new package should be targeted investment in areas such as labor and public health infrastructure to promote long-term economic growth.

Adam Posen, director of the Peterson Institute for International Economics, said: “This is not the best design plan that the Japanese government can take, nor is it the best time plan.” “

Direct cash payment is not even popular with the Japanese public. Opinion surveys show that most respondents questioned the reasons for using checks and vouchers to support families with children under the age of 18.

Kishida tried to ease criticism of wasteful spending by setting an income ceiling, but the impact was limited because about 90% of families with children still received checks.

Akihiro Morishige, a senior researcher at the Mitsubishi Research Institute, said: “Whether there are children is not an effective measure to measure which families are infected with the coronavirus.”

When a check of 100,000 yen was distributed to every Japanese citizen in May last year, analysts estimated that about 70% of the money ended up in bank savings.

“Even if about 30% of the 2 trillion yen allocated to families with children this time was spent, it would not have much effect on boosting overall consumption,” Moriju added.

The second problem with the government’s economic plan is timing. According to reports, the plan will include more than 40 trillion yen (350 billion U.S. dollars) in fiscal expenditures.

Due to the disruption of the global supply chain, Japan’s recovery from Covid-19 was slower than other developed countries. The Japanese economy contracted at an annual rate of 3% in the third quarter.

But even without new stimulus measures, most economists predict that due to the removal of Covid-19 restrictions, high vaccination rates and a sharp decline in the number of cases, there will be a strong rebound in the last three months of this year.

Critics say that politics is the main reason for the late launch of the economic plan. As Japan responded to the record rise in Covid-19 cases and hosted the unpopular Tokyo Olympics, the topic of stimulating inspections emerged in the summer.

However, due to Suga Yoshihide’s resignation as prime minister, a leadership contest was set off among the ruling Liberal Democratic Party, and the implementation was delayed.

After Kishida won the game in September, he called the general election in October, further delaying the sending of direct payments. Some checks will be delivered before the end of the year, but most will arrive in the first quarter of 2022.

“The time lag of the stimulus measures appeared in a very bad way,” said Kiichi Murashima, a Japanese economist at Citigroup. “It really feels like a policy made during the election.”

There are also technical difficulties in providing irritating tests to those hardest hit by the virus outbreak.

In addition to families with children, Kishida also said that the money will be provided to troubled low-income families, temporary workers and students.

But Morishige said that the Japanese government and local authorities lack a digital identification system that allows them to grasp real-time income data of citizens. This makes it more difficult for officials to effectively target citizens most affected by the disaster.

Analysts say this is part of the reason why the economic plan is expected to include a measure to reward points for those who have registered for the unpopular My Number ID card system, which will allow the authorities to build a digital infrastructure.

In addition to the stimulus check against Covid-19, the package will also include subsidies for small and medium enterprises and financial support for rising energy prices.

It is expected that Friday’s announcement will also include investment in the country’s $90 billion university endowment fund, funds to strengthen the semiconductor supply chain, and tax relief to promote wage increases.

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