Japan Economy Economic Plan:

 Article Source: https://mainichi.jp/english/articles/20221028/p2g/00m/0bu/020000c

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TOKYO (Kyodo) -- Japan on Friday will unveil a fresh economic package that will include 29.1 trillion yen ($199 billion) in government spending, featuring steps to alleviate the pain of accelerating inflation and lift the economy out of the doldrums amid COVID-19, Russia's war against Ukraine and a weaker yen.

Faced with faltering public support, the government of Prime Minister Fumio Kishida is reducing household utilities bills as a major pillar of the package, as people tighten their purse strings due to higher fuel costs and more expensive food and everyday goods.

The total size of the stimulus package will likely reach 71.6 trillion yen, when spending by municipalities and companies is taken into account.

Ideas:

Any kind of economic package is probably needed to help households with inflation. But at the same time government can't do everything but it can do what it can.  

As household spending or consumer spending is linked to increases in inflation, the government should help to reduce the stress on households which might help with consumer spending over time.

Household utility bills reduce extra income that can be used in other areas of the economy, but if consumers/households keep having reduced disposable income, then there is not much left for other spending in the economy.

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The massive spending plan comes despite the country's tattered public finances, with most of the necessary funds likely to be secured by issuing government bonds. The government is expected to submit an extra budget for fiscal 2022 through next March to the current parliamentary session.

Rising inflation has hit Japan while its economy recovers from the COVID-19 fallout much more slowly than in other advanced economies. Surging commodity prices and the yen's rapid fall of late are adding to its woes by inflating import costs for the resource-poor nation.

The government plans to lower household electricity bills by 7 yen per kilowatt-hour, meaning that an average household will save around 2,800 yen a month. Companies will receive support of 3.5 yen per kilowatt-hour, according to sources familiar with the matter.

Ideas:

Most likely before the pandemic Japan's economy wasn't as robust as it seemed so the reason why its taken so long for the Japanese economy to recover.

For example in 2019, there were a series of typhoons that ripped through Japan such as in the Chiba region, which caused a lot of damage. Then there was the 2019 sales tax increase which temporally reduced consumer spending, which seemed to take a long time for consumes to get used to the sales tax increase and the overall increase in prices.

So overall the end of 2019 and the beginning of 2020 wasn't the most robust time for the Japanese economy and it continued into the spring of 2020 which of course was the beginning of the pandemic.

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For city gas charges, the government will provide support of 30 yen per cubic meter of consumption, enabling an average household to save about 900 yen a month.

The existing subsidies for oil wholesalers to lower retail gasoline and kerosene prices will be extended beyond December. They will be reduced from June next year, the sources said.

Japan, a country known for its years of chronic deflation, has seen its inflation speeding up at its fastest pace in over three decades. The gain has been mainly caused by surging energy, raw material and food prices amid Russia's war, with core consumer prices, a key gauge of inflation, topping 3 percent in September.

Ideas:

For the average household a 900 yen a month savings or support doesn't seem like that much.  Of course it might be much more depending on how much is used related to each household.

As the winter months approach most likely Japan is going to see more households using whatever fuel they use in their homes, which means even higher costs even as the government implements subsidies. 

Perhaps Japan got to used to its continuous deflation and when inflation began to increase in the Japanese economy most consumers didn't know how to deal with a sudden increase in prices which they hadn't seen for many years if not decades.

And when inflation did hit Japan consumers were not prepared and or didn't know who to do deal with it, which meant most likely a decrease in consumer spending in the Japanese economy. 

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The impact of the yen's rapid depreciation has been increasingly felt, as the Bank of Japan maintains an ultralow rate policy while its global peers have already shifted to monetary tightening.

The economic package is also intended to ensure that the economy can reap the benefits of the weaker yen, by facilitating a recovery in inbound tourism and increased exports of Japanese farm products overseas.

To achieve more robust wage growth that would enable households to withstand the inflationary pressures, the government will include measures to promote it.

Ideas:

Perhaps the Bank of Japan feels the Japanese economy is just too weak to deal with all of the side affects related to an increase in rates. 

An increase in tourism is important but while globally its good that international tourists can return to Japan and take advantage of the weak yen, but the real bulk of tourists going to Japan are Chinese tourists which at the time is still a major challenge.

The weak yen will increase Japanese exports most likely as Japanese farm products seem to be growing in favor with overseas buyers it can only get better.

But the real challenge, as always, is wage growth which is badly needed in Japan for increase consumer spending and a deterrent to inflation increases.

But companies most likely are severely limited as their profit margins are restricted to the energy and raw material costs.

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Wage growth is critical for the central bank's efforts to attain its inflation target and also for Kishida to realize his policy of wealth redistribution.

Other steps will include handing out 100,000 yen per mother expecting a child amid the rapid graying of the population and financially supporting the domestic output of grain, fertilizers and livestock feed after Russia's war raised supply concerns.

Japan's economy grew an annualized 3.5 percent in real terms in the April-June quarter, helped by the lifting of anti-coronavirus curbs that had weighed on demand. But economists expect growth likely slowed in the following quarter to September, with the global trend of monetary tightening raising recession concerns abroad.

Ideas:

The Bank of Japan most never reach is target of 2 percent related to consumer demand and consumer spending as long as wages are not increased significantly.

And just what is Prime Minister Kishidas' wealth distribution plan. Is it just increasing wages which haven't risen in decades. If so, companies at this time don't seem too enthusiastic to do what they can to help the overall economy.

Japan has a definite challenge in its ageing society along with its low birthrate. But it's doubtful much can be done except for real structural changes related to the working conditions of women including higher wages for women that are equal to men. 

An economy is very complex and as such some sectors in the Japanese economy might have reached a 3.5 percent real growth but also some sectors might not have reached the same level.

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Ruling party lawmakers have stepped up calls for the government to aim for 30 trillion yen and critics argue its size came first despite Kishida's stated stance of putting priority on both size and substance in drawing up the package.

Initially, the size of government spending was around 25 trillion yen. But the government decided to increase it to around 30 trillion yen at the last minute, taking heed of the ruling Liberal Democratic Party, which sought more.

The BOJ's purchases of government bonds have left borrowing costs depressed at rock-bottom levels. This environment has helped the government step up spending despite its debt being more than twice the size of the economy.

Ideas:

Most likely even at 30 trillion yen it's not going to be enough to help everyone in the Japanese economy related to inflation and increased prices. 

A government can only do so much and it might be even be too much as sometimes too much help and slowdown a market economy.

There are always positives and negatives related to what the BOJ is doing, just like the US federal reserve. 

At this time Japan should be too concerned with its overall debt as it not like Greece in 2010. In 2010 most of the debt owed by Greece were to external borrowers will with Japan's debt it most the Bank of Japan and mostly internal.

Japan's economy seems to operate on a different level than other economies globally and as such its still a very stable economy the debt level has been there for decades and the economy has gone into bankruptcy and most likely won't.

Have a nice day and be safe!