Japan Plans $490 Billion Stimulus to Jolt Struggling Economy
Japan’s government approved a $490 billion package to support recovery from the Covid-19 pandemic after recent economic struggles, including cash payments to most families and some smaller companies.
The size of the package was nearly double what analysts were expecting earlier this month and amounts to about one-tenth of Japan’s gross domestic product.
It marked a contrast with the U.S., where concerns about government spending and potential overheating have come to the fore recently. The size of President Biden’s education, healthcare and climate package was scaled back to $2 trillion after criticism focusing on the national debt, and it includes tax increases such as a new 15% minimum tax on large U.S.-based corporations.
The plan by Japan’s Prime Minister Fumio Kishida, who took office in October, doesn’t include major tax increases and seeks to jump-start a sluggish recovery from the pandemic in the world’s third-largest economy. GDP shrank at a 3% annual rate in the July-September quarter, the second contraction in three quarters.
The headline size of the package is ¥55.7 trillion, equivalent to $490 billion. While some of that amount doesn’t involve direct government spending or comes from money already budgeted, a significant amount of new spending and government debt issuance is expected.
Most families with children will get cash payments and vouchers worth nearly $900 for each child aged 18 or younger. The government will provide financial aid of up to the equivalent of $22,000 each for smaller companies that can demonstrate they were affected by the pandemic. Wage increases for nurses and care workers are also planned.
Japan’s Covid-19 situation has taken a dramatic turn for the better since a peak in August, with only about 200 new infections each day. The government said it planned to restart a travel-incentive program that had to be called off last year when Covid-19 surged and eventually to invite back foreign tourists using a digitalized vaccine passport system.
Japan’s economy remains smaller than its pre-pandemic peak, while the U.S. and China have already made up for their pandemic setbacks and then some.
Mr. Kishida’s spending plans have drawn criticism, with some economists saying the cash handouts won’t address structural issues such as poor productivity growth. Others point to the size of the nation’s debt, totaling the equivalent of nearly $11 trillion as of the end of September.
Economy Minister Daishiro Yamagiwa said a big package was needed to address lingering effects of the pandemic. The plan “will bring security and hope to the people by rebuilding the economy,” he said. “This is the result of adding every possible measure at this stage.”
Lawmakers in both Mr. Kishida’s ruling Liberal Democratic Party and in opposition parties have advocated greater spending while generally not making a major issue of the debt. Some in the LDP say it isn’t a problem now because Japan issues debt in its own currency, the yen, and its inflation and interest rates are both around zero. The government is currently paying less than 0.1% interest on its 10-year bonds.
Yasunari Ueno, an economist at Mizuho Securities who has expressed concern about the debt, said the political consensus “led to a swelling in the size of the economic package.” He said Japan “needs different points of view about the future of its fiscal condition.”
Rather than focusing on spending, Mr. Ueno said policy makers should look at ways to lift long-term growth such as immigration policy. The country has been opening the door to more foreign workers, but still has far fewer immigrants than the U.S.