The Japanese Cabinet has announced its largest budget since the COVID-19 era, worth $135 billion, to alleviate the cost of living and support the economy amid concerns about fiscal stability and a weak yen.
November 21, 2568 at 11.28:XNUMX a.m. Bloomberg News reported that Prime Minister Sane Takaichi's cabinet has approved the largest economic stimulus package since the COVID-19 pandemic. This is an additional budget injection to alleviate the cost of living that is pressuring people, although such a large-scale measure may raise concerns among investors who are watching the strength of Japan's fiscal position.
The new measures, which will cost 17.7 trillion yen (about $112,000 billion) from the general budget, require additional funding and represent a 27% increase from the previous government's stimulus package last year, which totaled 21.3 trillion yen. The bulk of the package is cost-of-living relief.
A massive 11.7 trillion yen budget has been allocated to reduce the cost of living for the people. It includes a 7,000 yen subsidy for oil and electricity per household for three months, costing approximately 500 billion yen; a one-time child allowance of 20,000 yen per person, totaling 400 billion yen; and a 2 trillion yen budget for local development and assistance.
Saori Suiki, Senior Economist at Mizuho specify that Although the government's initial budget was already high, it had to be increased in the end to attract support from the opposition parties, which is a characteristic of a minority government. With a warning that If the market misinterprets the high limit, it could further pressure the yen, weakening the measure's effectiveness.
The sweeping cost-of-living measures reflect the Takaichi administration's determination to tackle chronic inflation, a key reason for the dismissal of its predecessor. Japan's core inflation has now remained above the BOJ's 2% target for 43 consecutive months, the longest run since 1992.
Additional anti-inflation measures include the elimination of the gasoline tax, costing 1 trillion yen, and raising the ceiling on income exempt from personal income tax, costing 1.2 trillion yen. All price measures are expected to help push inflation down by an average of 0.7% between February and April.
The package also includes significant funding for other missions, including 1.7 trillion yen to bolster defense and diplomatic capabilities, 1.1 trillion yen to push defense spending to 2% of GDP by the end of this fiscal year, 7.2 trillion yen for investments in risk management and disaster response, and a 700,000 billion yen reserve for natural disaster damage and rising "bear attacks."
While massive spending may put pressure on the treasury, the Takaichi government's popularity remains high. By ANN survey results specify that The government support rate rose 8.8 points to 67.5%, with many people expecting positive results from the package.
On the financial market front, investors are growing concerned that the government will need to issue more bonds to fund spending, sending yields on 5- and 10-year Treasuries to their highest levels since 2551, while longer-dated bonds have also risen. The yen has weakened past 157 yen per dollar, its weakest level since January, prompting officials to warn of risks to currency stability.
In terms of ranking institutions Rain Yin, analyst at S&P Global Ratings specify that While Japan will face increased spending on welfare, interest, and defense, its high public debt is already reflected in its current credit rating and is unlikely to see a significant downgrade.
The Japanese government estimates the package will boost GDP growth by an average of 1.4% per year for three years if the measures are fully implemented. Japan's economy contracted for the first time in six quarters in the third quarter, partly due to the impact of US tariffs.
On the economic front, the government has also allocated funds to strengthen the financial positions of JBIC and NEXI to support a $550,000 billion investment fund under the Japan-US tariff agreement, and is preparing to explore new sources of capital for investment in strategic industries such as shipyards, quantum technology, and critical minerals.
refer : www.bloomberg.com
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