Prime Minister Shinzo Abe formally decided the new stimulus less than two weeks after his cabinet approved an earlier plan to spend 108.2 trillion yen ($1 trillion), which had detailed payouts of 300,000 yen to households with sharp drops in income.
Abe has caved into pressure from within his own ruling bloc to boost the help with a payment of 100,000 yen for every citizen, instead of 300,000 yen for a limited number of households, analysts say, casting doubt about his leadership amid falling support. The new amount triples the cost from what the government had originally planned to 12 trillion yen.
“I understand the 100,000 yen payout scheme was decided with the aim of encouraging every citizen to help with each other to overcome this crisis as one,” Finance Minister Taro Aso said.
“The finance ministry will do the utmost to have this enacted quickly so that the payouts and other support will be delivered to the people as early as possible.”
Expansion of the scheme may support private consumption that accounts for more than half of the economy, some analysts said, though many others believe most of the payouts would end up in savings rather than spending to shore up the economy.
“Recipients of the payouts include the rich and the people whose incomes are not suffering, so savings will also rise,” said Ryutaro Kono, chef economist at BNP Paribas Securities.
“Even considering more people will suffer economic pain this time than during the 2009 financial crisis, the proportion of the payouts that will be spent is estimated at about 40%. As such, it would push up GDP only by 0.3 percentage points.”
The upsized package will total 117.1 trillion yen ($1.086 trillion), with fiscal measures making up less than half of it, the Ministry of Finance said.
To help fund the stimulus spending, the government compiled a record supplementary budget worth 25.7 trillion yen for the fiscal year from April 1, to be funded entirely by additional bond issuance, the ministry said. It compared with an initial extra budget worth 16.8 trillion yen.
Monetary, Fiscal Policy Mix
While the government boosts fiscal stimulus, the Bank of Japan (BOJ) has also joined other central banks to roll out stimulus to stave off the risk of a global recession.The BOJ eased monetary policy last month by pledging to boost risky asset purchases and create a new loan scheme to pump more money into firms hit by slumping sales. The central bank will discuss further steps to ease corporate funding strains at this month’s rate review as the impact hits profits.
The government on the other hand will raise the market issuance of government bonds by 5.8 trillion yen to 152.8 trillion yen in the fiscal year to March 2021.
The extra borrowing will add to the industrial world’s heaviest public debt burden, which is more than twice the size of Japan’s $5 trillion economy.
It is rare for the government to compile an extra budget at the start of a new fiscal year, and it is even rarer to revise a budget draft that has been approved by the cabinet after coordinating closely with the ruling coalition.
Last week, the prime minister, who has been criticised by some over his handling of the pandemic, apologised for confusion over a plan to start distributing Chinese Communist Party (CCP) virus relief payments next month.
The government is expected to submit the extra budget to parliament early next week, with the aim of gaining approval by the “Golden Week” holidays early May.
More than 200 people have died from the virus in Japan, which has reported more than 11,000 infections, of which more than a quarter are in Tokyo.
