Tax breaks and subsidies: Japan stimulus targets inflationーNHK WORLD-JAPAN NEWS
Japan’s cabinet has approved a new economic package worth billions of dollars. Yuko Fukushima is here from our business team to tell us why where the money is going and what effect it could have on the economy. Yes. Uh the similar package has three big goals. Help households tackle rising prices, strengthen economic growth, and upgrade defense and diplomatic capabilities. Prime Minister Takite Sia told reporters that her cabinet approved comprehensive economic measures to realize a strong economy. With this economic stimulus package, the government will prioritize quickly delivering measures against rising prices. We will also fund crisis management and growth initiatives. The government will implement strategic fiscal stimulus to protect people’s lives and create a strong economy. The economic stimulus package is worth about 21.3 trillion yen or roughly 135 billion. The expenditure from the general account is larger than that of the econom package compiled last fiscal year. Taking aim at the cost of living, the stimulus offers a funding boost for local governments. This extra money will allow local officials to roll out their own measures to tackle food prices. The package will also bring back subsidies for electricity and gas bills. Households will receive on average about $45 from January to March next year. As for strengthening economic growth, money will be allocated to improving Japan’s ship building capabilities. The government is proposing to set up a 10-year fund for this project. On the defense front, the plan is to accelerate spending. The government had already set a goal of raising expenditure to 2% of the country’s GDP. It now aims to hit that target by the current fiscal year that ends next March, two years earlier than first planned. For many Japanese, a focus is on what the package will do to tackle rising prices, a pain point for consumers. The Internal Affairs Ministry says consumer price index, excluding fresh food, was up 3% in October from a year earlier. It touched the 3% mark for the first time since July. The higher cost of food played a key role. Prices, excluding perishables, rose 7.2% from the same month last year. Coffee, beans, chocolate, and eggs saw big jumps. Rice has also remained expensive, rising 40% yearonear. Shoppers on the streets we spoke do welcome the new steps to tackle inflation, but many still have concerns. One of the measures in the package is a onetime cash handout plan for parents. About $130 per child. [Music] $130 for a child allowance is definitely not enough. You have to buy diapers, clothing, food, everything that’s needed for daily life. [Music] I have four grandchildren, so I think it will be helpful, but I’m worried that they might have to foot the bill for it in the future. So, what should we make of the package? I talked to Kobayashi Chunke, a longtime observer of Japan’s economy. He says the measures to help households deal with inflation are temporary. He says the real problem lies on the supply side rather than the demand side of consumers and households. The fact is there are not enough farmers in Japan to harvest rice and so the grains price is rising. It’s the same situation for many other foods which cannot be produced in the country anymore. This not only goes for food but the same thing is happening for industrial production. It all comes back to Japan’s demographics. There is a shortage on the supply side meaning a shortage of workers. If the government does not tackle labor shortages, it will not be able to resolve the growing inflation problem. So, I wish the stimulus package had put more emphasis on improving supply side capabilities. While Kobayashi says economic risks posed by the stimulus package are not extreme. He worries what could happen if the government goes too far in fueling demand. This package could tip the supply and demand balance into excess demand. If this goes too far, the measures the government plans to implement to tackle inflation will actually create more inflation. In addition, if demand becomes so strong that supply cannot be met by domestic production, goods will be imported from overseas. This will lead to an increase in yen selling by trading businesses that need to buy up dollars to purchase overseas goods. That would result in a weaker yen, in turn, fueling further price hikes in Japan. It’s still early days. Kobayashi says the package will likely stimulate consumption, a positive for the economy. But if pumped up demand raises imports rather than domestic production, he says the final impact on economic growth could be zero.
Rolling out a 135-billion dollar economic package, the government is focusing on relief from rising prices. We hear why a quick fix to fuel consumer demand could actually make inflation worse.
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