TOKYO: Japan’s latest economic stimulus package to cushion the blow from the coronavirus pandemic is likely to boost the economy most strongly next fiscal year, while it underscored the need to achieve economic revival and fiscal reform, key ministers said.
The ministers made the remarks as Prime Minister Yoshihide Suga’s cabinet approved on Tuesday a third supplementary budget to fund the $708 billion stimulus package, to help the economy recover from its COVID-induced slump in the second quarter.
The COVID-19 crisis has forced Japan’s government to put off fiscal reforms, even though it holds the industrial world’s heaviest public debt burden, more than twice the size of its economy.
“It’s true that underlying fiscal conditions will worsen due to the third extra budget,” Finance Minister Tarao Aso told reporters after the cabinet approved the budget.
“We must proceed to achieve both economic revival and fiscal reform so as not to cause loss of trust in finances, and overcome the coronavirus crisis.”
The stimulus package is expected to boost gross domestic product by around 0.5% in the current fiscal year through March, 2.5% in fiscal 2021, and 0.6% from fiscal 2022 onwards, Economy Minister Yasutoshi Nishimura said on Tuesday.
In its latest long-term growth projections, released in July, the government expected real GDP to shrink by 4.5% in the current fiscal year, followed by a 3.4% rebound in the next fiscal year through March 2022.
Private-sector economists in a Reuters poll released Tuesday expected the world’s third-largest economy to contract by 5.3% this fiscal year and 3.4% next fiscal year.
The boost from the new stimulus package is likely to lead to creation or support of jobs for about 600,000 people until the end of next fiscal year, the government said in an estimate released Tuesday.
“There will be a push-up effect,” Nishimura said.
The package, which includes about 40 trillion yen ($384.50 billion) of fresh fiscal spending, contains initiatives aimed at lowering carbon emissions and boosting adoption of digital technology.
The latest package would bring the combined value of coronavirus-related stimulus to about $3 trillion.
The third extra budget for the financial year ending in March includes spending of around 19.2 trillion yen to fund the new stimulus package.
Tax revenue is expected to fall 8.4 trillion yen short pf initial projections to around 55.1 trillion yen, pushing up planned bond issuance by 22.4 trillion yen and bringing new issuance to a record 112 trillion yen this fiscal year.
($1 = 104.0300 yen)
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