Japan’s Latest Extra Budget Adds $210 Billion in Spending

Japan’s cabinet approved a third extra budget with 21.8 trillion yen ($210 billion) in spending, as Prime Minister Yoshihide Suga looks to support the economy amid a resurgence of virus cases.

The budget includes 1 trillion yen in additional funding for domestic travel incentives that the government this week temporarily suspended amid concern it might fan the spread of the virus. The apparent contradiction shows how fast the pandemic is moving and the bind Suga finds himself in as he reins in a stimulus measure he’s championed.

Japan’s Latest Extra Budget Adds $210 Billion in Spending

Details of the budget to fund last week’s stimulus package come as analysts see the economy losing momentum after clawing back only around half of its pandemic losses during summer.

Record virus cases in the U.S. and Europe threaten the outlook for exports, which have been a key driver of the recovery. Suga suspended Monday his signature domestic travel program nationwide for two weeks over the New Year holidays after newly confirmed daily infections topped 3,000 for the first time over the weekend.

Finance Minister Taro Aso said the government will seek parliament’s approval for the budget early next year when parliament reopens from the holidays.

Economy Minister Yasutoshi Nishimura, speaking earlier in the day, said the government’s stimulus package would have its biggest effect next fiscal year. Combined, the more than $700 billion in measures will boost gross domestic product by 2.5 percent in the 12 months starting in April, and 0.6 percent in the year after that, he said. This fiscal year, he said, the package will add 0.5 percentage point to growth.

Among the biggest new spending items announced Tuesday were an additional 4.4 trillion yen for coronavirus prevention measures and 3.1 trillion yen for disaster management. There was also 11.7 trillion to help firms adapt to the coronavirus age, including 3.2 trillion yen in loan supports to businesses and smaller amounts for a worker furlough program and to help firms beef up supply chains.

With 58 trillion yen already spent in two previous extra budgets this year, Japan’s fiscal response to the pandemic already dwarfs measures taken following the global financial crisis, and the massive earthquake and tsunami of 2011.

The budget will be financed with an additional 22.4 trillion yen in debt that bring the country’s extra new bond issuances this fiscal year to around 14% of last year’s GDP. The borrowing adds to the developed world’s heaviest debt burden, but it comes amid assurances from the Bank of Japan that it won’t allow yields to rise.

Japan Debt Issuance Rises 112.6 Tln Yen to Record Amid Pandemic

Although the new spending is designed to shield the recovery from the fallout of the widening pandemic, much of it will be spent to help the economy retool for a post-coronavirus era, the government said.

The budget includes 2 trillion yen for investment in new technology to help Japan reach its 2050 target of net zero carbon emissions. The money will be used to boost development of next generation batteries, hydrogen fuel cells, and systems that recycle carbon dioxide.

After factoring in savings made on previous spending, the third extra budget’s net size was a smaller 15.4 trillion yen, according to the government. That’s around a fifth of the overall size of the stimulus package, offering a closer measure of its real punching power.

©2020 Bloomberg L.P.

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