TOKYO, Nov 26, Reuters -- Japan's cabinet approved its first extra budget for this fiscal year, with spending worth $315 billion to cushion the COVID- 19 epidemic, as the country keeps its stimulus taps open even as other economies close theirs.
The extra budget contains some populist spending despite the image of Prime Minister Fumio Kishida as a fiscal hawk, including cash payouts to households with children, financial support for corporations and tourism discounts.
Kishida believes that economic growth is more important than fiscal reform in the near-term to encourage citizens to share the fruits of growth under a wealth distribution policy called new capitalism. He is under pressure to increase spending in the run-up to upper house elections next summer.
Finance Minister Shunichi Suzuki said on Friday that Japan is in the midst of a coronavirus crisis and that the stimulus package has been compiled based on our stance of mobilising necessary fiscal spending without hesitation.
It's true that fiscal conditions will become more severe. We need to continue to work on fiscal reform. The industrial world's heaviest debt burden will be strained by additional government bonds worth 22 trillion yen, which will be used to finance 36 trillion yen spending.
Kishida's government will compile an annual state budget for fiscal 202223 next month, aiming to implement seamless spending over a 16 month period to underpin the world's third-largest economy.
The budgets are designed to boost growth in the green and digital sectors and strengthen chip factories, while the ruling bloc debated on Friday on an annual tax code revision focusing on measures such as tax incentives to encourage wage hikes.
Analysts don't think extra budget will boost growth.
The package's spending makes up 10.3% of its nominal GDP. Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities, said that if real GDP is up only by 5.6% as per government expectations, it can't be called wise spending. This is a failure as a boost to growth. The government has allocated 774 billion yen for boosting advanced chip output in the extra budget, including a fund worth 617 billion yen to back production bases over multiple years.
Kishida's cabinet unveiled the 79 trillion yen economic package last week, which has a record 55.7 trillion yen in spending.
The finance ministry will keep its market issuance of interest-bearing government bonds JGB as it reviews its issuance plan for this fiscal year after new stimulus.