Prime Minister Fumio Kishida needs to put together a stimulus package to shore up a recovery from the Pandemic, as Japan's economy shrank more than expected last quarter.
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The Cabinet Office reported that gross domestic product contracted an annualized 3% in the three months through September from the previous quarter. Economists predicted a 0.7% decline.
The economy has fallen in five of the past eight quarters. Consumption dropped as a summer wave of Covid 19 cases hit the country, triggering a resumption and extension of emergency restrictions. Japanese manufacturers ran short of chips and components, so supply-chain constraints hit production.
The economy is on a recovery path because of the contraction, as well as additional justification for the measures to be taken.
In addition to providing a short-term boost to the economy, the premier has indicated that he wants to secure growth over the medium to long term and a fairer distribution of income.
According to a report by the Nikkei newspaper on Friday, the measures will exceed 40 trillion yen $350 billion in fiscal measures. Kishida said that 100,000 yen handouts will go to those 18 years and younger.
The measures are expected to include a pay increase for caregivers, enhanced tax breaks for firms that raise wages and a resumption of subsidies for domestic travel.
Private consumption fell at an annualized pace of 4.5% from the previous quarter.
Exports fell 8.3%, but a bigger fall in imports meant trade added fractionally to growth overall.
Japan is recovering at a slower pace than its global counterparts, partly because it suffered a relatively small blow to its economy at the peak of the Pandemic.
After the initial rebound, the growth has been patchy, with pent-up demand yet to emerge as it has in other economies. In 2022, the International Monetary Fund forecasts that Japan will continue to experience the slowest expansion among the Group of Seven nations.
We expect GDP to rebound after 4Q. A fresh stimulus package is planned by Prime Minister Fumio Kishida, and should boost business and consumer sentiment. Kishida is expected to announce details of the package at the end of the week as he tries to restart the recovery and cement his hold on power ahead of more elections next year.
Last week, his new capitalism panel published a series of suggestions for improvements for the country that included everything from boosting green and digital investment to rethinking how startups are listed. None of the poorest countries in the world has found a better way to do stimulus.
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