Japan's prime minister delivers $316bn extra budget to fund biggest fiscal package

Japan's Prime Minister Fumio Kishida. AFP

Japan's Prime Minister Fumio Kishida delivered his first extra budget, funding the country’s biggest-ever fiscal package, as he tries to lay the groundwork for what he’s billed as a new version of capitalism to secure an economic recovery before next year’s elections.

Mr Kishida’s cabinet approved new spending of 36 trillion yen ($316 billion) and the issuance of about 22tn yen in new government bonds to pay for it, according to government documents released on Friday.

More than a trillion yen in cash handouts for households with children, along with several trillion more for restaurants and other businesses hit by the pandemic are among the measures.

While Japan appears to have brought Covid-19 under control for now, the stock market tumbled and the yen strengthened earlier on Friday due to concerns over new variants of the virus found in Hong Kong and South Africa, a reminder of the continued risks.

Still, some analysts have questioned the need for so much spending now, given that Japan has been able to lift most restrictions on activity and the economy was forecast to rebound on its own.

Mr Kishida’s spending package also adds to Japan’s growing mountain of debt, although the country’s ultra-low interest rates and the fact that most of its bonds are owned domestically helps to make the situation more sustainable.

Moody’s Investors Service earlier on Friday affirmed Japan’s A1 sovereign rating and said the outlook continued to be stable.

Mr Kishida, who had been known for being fiscally cautious, surprised investors last week by unveiling a record fiscal package of 56tn yen, following a report days earlier that the economy shrank last quarter for the fifth time in eight quarters.

But with vaccination rates now over 75 per cent and restrictions on economic activity largely lifted, the recovery already looked poised to pick up.

Even without the latest stimulus factored in, the International Monetary Fund calculates Japan’s government debt will reach 257 per cent the size of GDP in 2021, the biggest among developed nations.