Japan will compile a new economic stimulus package worth 73.6 trillion yen ($ 708 billion), Prime Minister Yoshihide Suga said on Tuesday, signaling his determination to pull the country out of the crisis induced by the crisis. coronaviruses.
The new stimulus package will include tax expenditures worth around 40 trillion yen ($ 384.2 billion), Suga said in a meeting with ruling party leaders.
The government is set to finalize the stimulus package later on Tuesday, which would follow a combined $ 2.2 trillion of two previous packages focused on immediate pressure on households and businesses.
The new economic measures would help push “new economic growth,” Suga said at the meeting.
The package will likely include grants and incentives to get companies to boost green investment and digitization spending, an area Suga has identified as his top policy priorities.
A fragile rebound
The stimulus announcement came as the government announced an improvement in its economic performance in the third quarter.
Gross domestic product (GDP) jumped 22.9% annualized over the July-September period, better than Tokyo’s initial estimate of a 21.4% expansion.
Growth was driven by a rebound in exports and consumption following the crisis caused by the lockdown measures to contain the virus which in turn caused Japan’s worst post-war contraction in the second quarter.
Japanese household spending rose 1.9% in October from the previous year. But this figure is lower than a median market forecast for a gain of 2.5%, despite being the first increase in 13 months, a sign that the economy is gradually emerging from the damage caused by the first wave. coronavirus infections.
The increase was mainly in response to lower spending in October of last year, when households cut back on consumption after a sales tax hike that went into effect that month.
A government campaign proposing cuts on domestic travel, which critics say could have helped spread infections, also supported otherwise low spending on services, the data showed.
But a recent surge in infections is clouding the outlook, keeping policymakers under pressure to support a fragile recovery with massive monetary and fiscal stimulus.
“The Japanese economy will continue to grow in the current quarter, but could stagnate or contract in January-March,” if an increase in infections forces the government to take stronger measures to contain the virus, Takeshi Minami said , chief economist at the Norinchukin Research Institute.
Real wages fell in October for the eight straight months, separate data showed, suggesting households are not immune to the consequences of corporate profits by the pandemic.
With the economic recovery looking fragile, the Bank of Japan is expected to maintain its extensive monetary stimulus program and consider expanding a range of programs to ease stress on corporate finance as soon as it revises rates next week.
The stimulus package could also be a way to ensure the prime minister’s political survival, according to the Bloomberg news agency. Suga needs his own term after taking over as head of the ruling Liberal Democratic Party four months ago when Shinzo Abe stepped down due to health concerns. This means that he must keep the economy strong until September, the likely date of a national poll.
Sentiment among Japanese manufacturers and service sector companies in December became the least pessimistic since February, as companies envisioned a slow and bumpy recovery from COVID-19 disruptions, a Reuters poll showed on Tuesday.
Both sectors expect conditions to remain negative next spring, with negative comments from respondents on business outnumbering positive, according to the Reuters monthly Tankan, which closely follows the Bank’s quarterly Tankan survey. of Japan (BOJ).
The Reuters Tankan sentiment index for manufacturers hit its highest level since February in December, falling to minus nine from minus 13 the month before. But the index remained in negative territory for the 17th consecutive month.
Manufacturers pointed to worsening conditions for capital spending due to falling demand for the coronavirus in the survey of 485 large and medium-sized companies.
The services sector index showed a more significant improvement, dropping to minus four from 13 in November, also its highest since February, as sentiment across all sub-sectors was better than the month before.
Reuters Tankan Index readings are obtained by subtracting the percentage of respondents who say conditions are bad from those who say they are good. A negative reading means that there are more pessimists than optimists.
The BOJ, which lowered its forecast for economic growth and inflation for the current fiscal year at its latest policy meeting, is due to release its own Q4 Tankan survey results on December 14.
The central bank’s third-quarter survey showed that the capital spending plans of companies of all sizes and industries for the current fiscal year were at their lowest since the global financial crisis of 2009.