Japan Economic Support:

 Article Source: https://mainichi.jp/english/articles/20221018/p2g/00m/0bu/053000c

Article:

TOKYO (Kyodo) -- Japan should target around 30 trillion yen ($201 billion) for a new economic package to be compiled later this month, a senior ruling party lawmaker said Tuesday as the government aims to help ease the pain of accelerating inflation and support the economy.

Koichi Hagiuda, the policy chief of the Liberal Democratic Party, told reporters after meeting with Prime Minister Fumio Kishida that they agreed that "the size and substance" of the package are important.

Faced with plunging public support, Kishida is scrambling to increase government support for struggling households and make it more visible by reducing energy bill.

Ideas:

There is always a debate as to how much a government should support an economy. Some might say if too much support it might impede the normal workings of a market economy.

But at the same time, if not enough support is given, there are some groups or members in society that could become worse off.

So there are always positives and negatives as to how much and when a government should support the economy.

There is no right or wrong answer or how and when to do it. But of course those in need are becoming worse off if nothing is done.

Article:

Another key feature would be to expand subsidies for small and midsize companies that raise pay, as Kishida attaches importance to wealth redistribution as part of his push for creating a new capitalism.

"The problem is that we haven't seen wage growth (to keep pace with price hikes)," Kishida told a parliamentary session on Tuesday, adding that the new package would aim to strengthen the economy despite inflation and the weak yen.

Russia's war against Ukraine has increased energy, raw material and food prices. Resource-poor Japan has felt the effect magnified by the yen's sharp depreciation as it boosts import costs. The Japanese currency has hit a fresh 32-year low beyond 149 to the U.S. dollar.

Ideas:

And in this situation, increasing subsidies for companies that increase pay might have some positives and some negatives. It can be an incentive for companies to increase pay but at the same time some might think it can interfere in the normal workings of a market economy.

There is still the idea as to what does a wealth redistribution really mean? And what does a new capitalism mean?

Yes, it's good to get a much as possible into the hands of workers, as then they can spend some and save some in a normal balanced economy. But as has been seen the last decade or more not enough it being done as maybe companies are hoarding what profits they have and not giving enough workers the needed wage increases to overcome to inflation situation.

As inflation continues to increase and or continues to remain high it of course means the potential for less and less consumer spending as workers/consumers cut back on everything except the most essential items.

Article:

Though still slow compared to the United States and Europe, Japan's inflation has accelerated in recent months. Economists expect the world's third-largest economy to show slower growth in July-September than the previous quarter.

The government is facing growing pressure to take steps to ease the pain, while opposition party lawmakers are also putting part of the blame on the Bank of Japan, whose ultralow rate policy has been weakening the yen.

The government plans to start reducing electricity bills as early as January while also seeking a similar program for gas. It will extend existing subsidies for oil wholesalers to lower retail gasoline and kerosene costs beyond the current deadline of December, Kishida has said.

Ideas:

Most likely US wage growth and salaries in the US are much higher than in Japan. Despite the 40 year high in the US, the Japanese economy and Japanese workers might feel more stress as their wages have not kept pace in decades with is happening.

Yes, part of the blame might be in the Bank of Japan, but the BOJ has its reasons such they might feel if they increase rates it could cause even more problems. Even more than the economy is facing now.

As rates increase, everything gets compounded in that now the potential is everything gets even more expensive including loans, existing loans, and so on which potentially can slow the economy down even more and there is a real recession situation.

And yes, reducing electricity bills will of course help families, consumers, and companies and of there is always a negative in that the government now has to continue to add more and more subsidies for energy companies to keep up with inflation.

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After the package is finalized, the government is expected to submit an extra budget to parliament in November for the current fiscal year through next March.

The compilation process comes as the government will also step up work to draft a state budget for the next fiscal year. A substantial increase in defense spending is expected even as the country has debt more than twice the size of its economy.

Ideas:

The problem is budgets take so long to be completed and then who knows when and if families can see any kind of support related to the new budget.

Defense spending is a very tricky issue as it always has geopolitical possibilities. While the Japanese government sees it a a necessary move but at the same time, it will increase the national debt even more.

Most of the debt in Japan is owned in Japan and is not external like in Greece in 2010. So there is almost no chance of other countries interfering in Japan's debt situation.

But the debt situation could be challenge later. In 2014 and 2019, the Japanese government increased the sales tax from 5 to 8 percent and then 8 to 10 percent respectively, as way to try in reduce the debt. Of course that was all before the pandemic.

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In a set of proposals handed to the prime minister, the LDP called for a package that could help Japan overcome what it described as the "national crisis" and bring relief to people in Japan.

It stressed the need to restore the country's earning power at a time of yen weakness, ensuring a recovery in inbound tourism hit by the COVID-19 pandemic and promoting farm exports.

Ideas:

It might be considered a "national crisis" in that the Japanese economy has not seen price increases like this in a very long time, and most Japanese workers have not had a real wage increase in a very long time.

Just how can the Japanese government restore the country's earning power without getting companies to increase wages to the point that it is more than inflation.

If the Bank of Japan does increase the key rate, which is highly unlikely at this point, and the yen becomes more equal to the US dollar then maybe just maybe import prices will decrease some. 

But that is not the real challenge. As noted all along the challenge is wage growth. How to get more money into the hands of the regular Japanese consumer to where they feel good about spending.

But the problem becomes psychological in that Japanese consumers are too conditioned with stress and anxiety and maybe never spend as freely as the US consumers, which might be needed to get the Japanese economy back on track.

International tourists will help out a lot but the bulk of tourists to Japan are stuck in China and can't really travel yet. So yes, it's good that tourism is back but it's going to take some time to get back to the 32 million tourists that came it Japan in 2019.

Have a nice day and be safe!