TOKYO — Japanese Prime Minister Fumio Kishida said on Friday the government will compile an extra budget worth 29.1 trillion yen ($199 billion) to fund a fresh spending package to cushion the economic blow to households from accelerating inflation.
The total size of the package, including municipal government and corporate spending, will total 71.6 trillion yen, Kishida said in a meeting with ruling party executives.
“Our focus is to respond to rising prices, the weak yen, as well as promoting investment to raise wages and economic growth,” Kishida said.
The package will be approved by the Cabinet later on Friday.
Kishida’s administration has pledged to compile a spending package this month to cushion the economic blow from rising fuel and food prices.
With his approval ratings plunging, the premier has been under strong pressure from ruling party lawmakers to ramp up the size of spending to ease the pain on households and retailers.
Under the package, the government will introduce subsidies to cut household electricity bills by roughly 20% from January to September next year, a draft of the package showed.
It will also issue coupons to families with newborns, and extend a subsidy to curb gasoline prices, the draft showed.
Nomura Research Institute estimates that spending under the package will likely boost Japan’s nominal gross domestic product (GDP) by 2.39%.
But Takahide Kiuchi, executive economist at the think tank, warned that ramping up spending at a time the economy is in fairly good shape could pose a danger for Japan, which has the biggest public debt among major economies.
“The Bank of Japan’s extraordinary monetary easing and the government’s expansionary fiscal spending create a policy mix that erodes market trust in the yen,” said Kiuchi, a former BOJ board member. “This could accelerate unwelcome yen falls.”
Analysts expect the government to issue bonds to fund some of the spending, adding to Japan’s already huge debt pile.
The government has intervened in the currency market to combat the yen’s slide to 32-year falls, which are driven by the divergence between the BOJ’s ultra-low interest rates and steady rate hikes by the U.S. Federal Reserve.
($1 = 146.1900 yen) (Reporting by Yoshifumi Takemoto and Leika Kihara; Editing by Christopher Cushing)