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Japan rolls out $350 billion stimulus as West eases state spending

The risk that developed economies overheat after heavy government spending to combat the coronavirus pandemic may cause growing concern in the US and Europe, but Japan is grappling with the problem. opposite.

Asia’s largest advanced economy spent 88 million yen ($770 billion) on financial stimulus, or nearly 17% of gross domestic product, since the start of the Covid-19 outbreak in 2020.

But just as many parts of the world recover and weigh options for easing their stimulus measures amid rising inflation fears, Prime Minister Fumio Kishida is preparing to direct cash distribution 100,000 yen ($872) for households with children under 18 as part of a massive economic package to be announced on Friday.

The challenge, however, is that stimulus checks distributed in the past have done little to boost consumption and inflation in Japan, and there is little sign that the outcome will be different this time around.

However, concerns about additional stimulus measures are mainly due to Japan’s mounting debt burden, which has already amounted to 266% of its gross domestic product.

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

Haruhiko Kuroda, Governor of the Bank of Japan, forecasts inflation to only increase to about 1% by the middle of next year.

The bigger focus of the new package should be on ways to boost the economy’s long-term growth through targeted investments in areas like the workforce and infrastructure, analysts say. public health floors.

“This is not the best designed package, nor is it the best timed package that the Japanese government can do,” said Adam Posen, president of the Peterson Institute for International Economics. “It is not clear whether accelerating recovery through temporary fiscal stimulus is a priority.”

Direct cash payments are not even popular with the Japanese public. Polls show a majority of respondents question the rationality of supporting households with children under 18 with checks and vouchers.

Kishida has sought to quell criticism of wasteful spending by imposing an income limit, but the impact is limited as checks will still be delivered to about 90% of households with children.

“Having children is not an effective measure to assess which households have been infected with the coronavirus,” said Akihiro Morishige, senior researcher at Mitsubishi Research Institute.

In the previous 100,000 yen distribution to all Japanese that began in May last year, analysts estimate that about 70% of this money was deposited in bank savings.

Morishige added: “Even if about 30% of the ¥2tn distributed to households with children are used during this time, it won’t do much to boost overall consumption.

The second problem with the government’s economic package, which will reportedly include fiscal spending of more than 40tn won ($350 billion), is timing.

Japan has recovered more slowly from Covid-19 than other advanced countries with its economy contract at an annualized rate of 3% in the third quarter due to global supply chain disruptions.

But even in the absence of new stimulus measures, most economists expect a strong recovery in the last three months of the year on the back of the lifting of Covid-19 restrictions, high vaccination rates and the number of cases decreased sharply.

Critics say politics was the main reason the economic package was rolled out late. Discussion about stimulus testing has resurfaced over the summer as Japan grapples with a record surge in Covid-19 cases and hosts the unpopular Tokyo Olympics.

However, the implementation was delayed when Yoshihide Suga resigned as prime minister, ushering in a leadership race within the ruling Liberal Democrats.

After Kishida won the contest in September, he called general election for October, further delay the sending of direct payments. Some checks will be delivered at the end of the year, but most will only arrive in the first quarter of 2022.

“The time lag of the stimulus has come out in a very bad way,” said Kiichi Murashima, Japan economist at Citigroup. “It’s really like an election-time policy.”

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

In addition to households with children, Kishida said the money will be given to struggling low-income households, temporary workers and students.

But Morishige said the Japanese and local governments lack a digital identity system that allows them to capture real-time income data of citizens. That makes it difficult for officials to effectively target the hardest-hit citizens.

That is part of the reason, analysts say, why the economic package is expected to include a measure to reward points for those who have signed up for the uncommon My Number ID card system, which allows agencies to authorities building digital infrastructure.

In addition to stimulus checks to combat Covid-19, the package will include subsidies for small and medium-sized businesses and financial support for rising energy prices.

Friday’s announcement is also expected to include an investment in the country’s $90 billion university endowment fund, money to strengthen semiconductor supply chains and tax breaks to boost wages. .

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