Japan’s Kishida Orders Fresh Stimulus Package in October

(Bloomberg) — Japanese Prime Minister Fumio Kishida ordered the putting together of a fresh stimulus package in October to help the economy weather the impact of inflation in addition to a round of price-relief steps updated on Friday.

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The government will consider an extra budget to fund the extra stimulus in the autumn, which will also include efforts to promote a new form of capitalism, the premier said Thursday evening, without offering more details.

A previous package announced in April had 6.2 trillion yen ($43.2 billion) in measures to help households and businesses deal with inflation.

In the meantime, Kishida’s government unveiled Friday an updated round of price-relief steps that largely extends previous aid while adding cash handouts and grants.

Kishida said low-income households will receive 50,000 yen ($347) handouts to help them cope with higher energy bills and food prices. Regional governments will get a 600 billion yen boost in grants to pursue their own inflation measures, the premier added.

The updated steps include a continuation of gasoline subsidies through to the end of the year. Price caps for wheat and animal feed will also be maintained.

About 3.5 trillion yen in reserves will be allocated later this month for the price steps as well as for dealing with the pandemic.

Kishida is trying to appease public angst as support for his administration wanes in the polls. Inflation is hitting households, especially families on low incomes, as the prices of daily necessities like food and energy climb while wage growth remains limited.

Energy and fresh food costs have played a major role in boosting Japan’s inflation. Electricity prices were up 20% from a year ago in July while some fresh kitchen items such as onions soared by as much as 70%.

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The pain of those elevated costs is masked in the overall inflation figures showing prices in Japan rose 2.6% in July from a year ago. After stripping out the impact of fresh food and energy, price growth was an even more subdued 1.2%.

The yen’s 20% slide against the dollar to a 24-year low has amplified the effect of already-soaring prices for imported energy and food, on which Japan is heavily reliant.

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The currency’s fall is linked to the Bank of Japan’s insistence on sticking with rock-bottom interest rates to support the economy and secure more stable inflation while the world’s other central banks race to raise rates.

For now the government is relying on its price measures to provide relief from soaring costs rather than nudging the BOJ to change tack.

The government is subsidizing oil refiners when the national average of regular gasoline prices rises above 168 yen per liter. Without the gasoline subsidies, the industry ministry estimates the going rate at the pump would have been above 207.3 yen per liter instead of 169.6 yen this week.

The cash handouts for low-income households will add up to 900 billion yen and will be funded by reserves, the Yomiuri newspaper has reported. At the end of July, about 4.75 trillion yen was left in 6.12 trillion yen reserves earmarked for inflation management and the pandemic, according to the finance ministry.

Kishida gave no details about what would be included in the new spending package or how it would further his goal of modernizing Japan’s system of capitalism to make it fairer.

The premier’s previous package in April was expected to shave 0.5 percentage point off overall consumer prices from May through September, according to the Cabinet Office.

The economy has regained its lost ground during the pandemic, but the recovery is facing headwinds with inflation threatening to cool consumption and with expected slowdowns in the US and Europe likely to weigh on Japan’s exports.

(Updates with more details)

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