Japan to unleash $350bn stimulus as west unwinds state spending

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The world nations are on their way to recovering from the pandemic. The recovery rate is so fast there is the risk of overheating in the air. But Japan is facing a different risk.

Just like any economy, Japan also released fiscal spending as a stimulus for the pandemic. Japan has already spent ¥88tn as a stimulus, i.e.17% of its GDP since the pandemic.

But just when the nations are planning to withdraw the stimulus package, with tensions about the inflation high in the air, Japan is doing something different.

The newly elected Prime Minister Fumio Kishida has declared a direct cash distribution of ¥1,00,000 to every family with children under 18, which is supposed to be a part of a huge package to be revealed on Friday.

These kinds of stimulus cheques have not done much to change the inflation and consumption in the economy before. There is no hope it will work now. There is also concern over the massive debt load, reaching 266% of the GDP.

According to analysts, the focus of the government should be on finding means to increase the long-term growth of the economy. It should be through targeted investments in sectors such as public health and labour.

According to Adam Posen, the President of the Peterson Institute for International Economics, it is neither a well-designed package nor what the time demands.

It is also not favourable by placing priority over speeding up the recovery through temporary fiscal stimulus.

This package is not popular among the citizens, as polls show the majority questioning the decision of such aid. Even though he has placed an income cap, the cheques will reach 90% of the families with children.

Another issue with this ¥40tn fiscal spending package is its timing. Japan is the slowest among the developed nations in post-Covid recovery.

With the onset of the global supply chain crisis, the economy is contracting at an annualized rate of 3% in the third quarter.

Economists say that because of the receding pandemic, the economy will grow in the final three months without the help of a stimulus. The reason for the late arrival of the package is politics.

The idea of the present stimulus cheques emerged in early summer when there was a spike in infection and when the Tokyo Olympics was held. Then the change in leadership of the ruling party and general elections delayed it.

There are also technical difficulties as cheques will only reach everyone by the first quarter of 2022. There is a lack of identifying the hardest hit among them, as there is a lack of a digital identification system for finding the affected.

The stimulus package is also expected to include subsidies for SMEs, support for the energy crisis, more money for university endowments, semiconductor supply chains, and tax breaks for wage rises.

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