Japan’s Suga Doubles Down on Travel Bet in $700 Billion Package

(Bloomberg) -- Japanese Prime Minister Yoshihide Suga doubled down on his bet that promoting domestic travel will ensure the economy stays on a recovery path and that his tenure as premier will continue beyond a single year.

Despite a resurgence in Covid-19 infections that some observers have blamed on Suga’s Go-To-Travel campaign, the government on Tuesday unveiled a six-month extension of the measure as part of an economic stimulus package with an overall value of more than $700 billion.

The latest package, to be funded by a third extra budget and next year’s annual budget, also extends an enhanced furlough program, provides support for medical facilities and homes for the elderly, and cash handouts for single parent families, as Japan adds to an IMF tally of $12 trillion in global stimulus this year.

The package also looks to shore up corporate cash flows, and promote the development of green and digital technology, two areas that Suga is looking to make central themes of his tenure.

Suga said the measures would boost the economy by 3.6 percentage points but didn’t clarify the yardstick or time period he was referring to.

The prime minister is trying to shore up an economy that is expected to lose momentum after clawing back about half of its pandemic losses during faster-than-initially estimated growth in the summer. With support for his cabinet falling amid the uptick in virus cases, Suga needs to balance the need to prop up growth against the risk of fanning the outbreak.

“Suga is taking a strong stance on Go To travel, but I support him given that he must keep pursuing a balance between the pandemic and the economy,” said economist Yuichi Kodama at Meiji Yasuda Research Institute. Helping the economy through the private sector via the program is a more efficient and less costly alternative to cash handouts, he added.

“Still, Suga had to inflate the overall size of the economic package because he’s being criticized for being behind on counter-virus measures,” Kodama said.

The resurgence in Covid cases to record infection levels at home and abroad is already clouding the outlook despite improving exports, household spending and bankruptcies that are down from a year earlier as companies take advantage of government and Bank of Japan loan programs.

Sentiment data out Tuesday showed the outlook among consumer-orientated small businesses has plunged back to the level seen in May when Japan started to emerge from its state of emergency.

The Cabinet Office Economy Watchers survey often follows a similar trajectory to the BOJ’s closely watched Tankan survey of business sentiment, due out Monday.

The stimulus package has an overall value of 73.6 trillion yen and fiscal measures -- typically, loans, investment and spending -- of around 40 trillion yen. The national cost of the public spending would reach 30.6 trillion yen over the next 15 months, with 19.2 trillion yen coming from an upcoming third extra budget, excluding special funds, the government said.

What Bloomberg Economics Says...

“A problem with trying to support an economy with round after round of fiscal stimulus -- each subsequent spending spree, no matter how well targeted, tends to pack less punch. That’s something Japanese Prime Minister Yoshihide Suga will likely find out.”

--Yuki Masujima, economist

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The latest measures are smaller in scale than the funding seen in two extra budgets so far this year. Those budgets added 58 trillion yen of additional spending equivalent to around 11.3% of the size of the economy. The extra outlays could take that figure closer to 14%.

Suga’s intention to continue with the travel program suggests he expects the government will keep the virus under control and that the economy will benefit from the program as the situation improves next year.

Through mid November, 52.6 million hotel nights had already been subsidized by 35% under the discount program. Suga has repeatedly defended the subsidies program, emphasizing on Friday that around 9 million people work in travel and related industries in Japan.

©2020 Bloomberg L.P.