Japan Approves $215 Billion Extra Budget to Tackle Mounting Inflationary Pressures

People make their way at Ameyoko shopping district in Tokyo, Japan, May 20, 2022. Kim Kyung-Hoon/Reuters

Japan’s parliament on Friday approved a second supplementary budget worth 28.92 trillion yen ($215.3 billion) to boost the economy and help households cope with mounting inflationary pressures.

The budget includes 3.11 trillion yen ($23 billion) to reduce monthly household electricity and gas costs by 5,000 yen ($37), as well as 3.02 trillion yen ($22.5 billion) for subsidies to local oil wholesalers, Kyodo News reported.

It will also fund dozens of multi-year projects and subsidies for semiconductor manufacturing. The government will allocate 5.5 trillion yen ($40 billion) to fossil fuels innovation and measures to promote flexibility in the labor market.

The supplementary budget will be funded through the issuance of government bonds worth 22.85 trillion yen ($170 billion), despite concerns over the heavy national debt amid rising import costs and a weakening yen.

The Japanese government has mainly stuck to using spending to counter inflation instead of raising interest rates because the nation’s economy has been growing at a slow pace for many years.

The latest budget will bring Japan’s total spending for the fiscal year to over 139.2 trillion yen ($1.03 trillion). Finance Minister Shunichi Suzuki said on Nov. 8 that the budget spending is making Japan’s fiscal health “more severe.”

“While exiting exceptional response to coronavirus in a shift towards normalization, we must conduct responsible economic and fiscal management,” Suzuki told Reuters.

“We cannot afford to continue such large fiscal spending. We must also be mindful of the risk of national wealth outflow through trade deficit,” he added.

Prime Minister Fumio Kishida had also urged his cabinet to increase the defense budget to 2 percent of GDP by 2027 amid growing security concerns. Japan currently spends 1 percent of its GDP, or 5 trillion yen ($36 billion), on defense.

Japan’s Inflation Rate Hits 40-year High

Japan’s core consumer inflation rose 3.6 percent in October, the highest level in 40 years, driven by a weaker yen and rising import costs as the central bank kept its monetary easing policy in place.

Consumer prices in Japan’s capital, Tokyo, also rose 3.6 percent in November from the previous year, the fastest pace since 1982. The increase was primarily driven by rising energy prices (24.4 percent) and food prices (6.7 percent), excluding perishable items.

However, BOJ Governor Haruhiko Kuroda said the bank would maintain its monetary easing policy to achieve price stability. Kuroda also emphasized the need for a wage increase to offset the rise in goods prices.

“At this point, we cannot say our 2 percent price stability target has been achieved stably and sustainably, accompanied by wage growth. It will unlikely be attained in the next fiscal year, so monetary easing should continue,” Kuroda said in Parliament on Nov. 18.

The Associated Press contributed to this report.