Japan eyes record stimulus package, bucking global tapering trend

Japan is set to compile on Friday a record $488 billion spending package to cushion the economic blow from the COVID-19 pandemic, bucking a global trend towards withdrawing crisis-mode stimulus measures and adding strains to its already tattered finances. Spending ballooned from an array of payouts including those criticised as unrelated to the pandemic, such as cash handouts to households with youth aged 18 or below, and will likely lead to additional bond issuance this year, analysts said.

Japan is set to compile on Friday a record $488 billion spending package to cushion the economic blow from the COVID-19 pandemic, bucking a global trend towards withdrawing crisis-mode stimulus measures and adding strains to its already tattered finances.

Spending ballooned from an array of payouts including those criticised as unrelated to the pandemic, such as cash handouts to households with youth aged 18 or below, and will likely lead to additional bond issuance this year, analysts said. The massive spending would underscore the resolve of Prime Minister Fumio Kishida - once considered as favouring fiscal restraint - to focus on reflating the economy and redistributing wealth to households.

"The reflationary monetary policy and go-big-or-go-home fiscal policy pioneered by (former Premier) Shinzo Abe is now the orthodoxy," said James Brady, an analyst at Teneo. "Though Kishida has been known in the past for being somewhat hawkish, he appears set to continue the Abenomics paradigm for several more years."

Bond yields ticked up on Thursday after the Nikkei newspaper reported the new stimulus package will include record spending of about 55.7 trillion yen ($488 billion), much bigger than 30-40 trillion yen estimated by markets. The total package, which includes funds that do not lead to immediate spending, will likely reach 78.9 trillion yen, the paper said without citing sources.

Kishida will announce the package later on Friday and compile an extra budget, expected around 32 trillion yen, to fund part of the cost, the Asahi Shimbun daily reported on Friday. Aside from issuing debt, the government will tap 4.5 trillion yen in reserves set aside for emergency pandemic spending, the paper said.

Japan has lagged other economies in pulling out of pandemic-induced doldrums, forcing policymakers to maintain massive fiscal and monetary support even as other advanced nations dial back crisis-mode policies. Policymakers hope the new spending will help underpin the economy, which shrank more than expected in the third quarter due to the hit to consumption and exports from pandemic curbs and global supply disruptions.

Japan's three massive spending packages to counter the pandemic have left it with outstanding long-term debt roughly double the size of its $5 trillion economy. ($1 = 114.2400 yen)

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