Japanese Prime Minister Yoshihide Suga will announce plans for a new stimulus package next week in an effort to negate some of the damage that COVID-19 has inflicted upon the Japanese economy. 

• The size of the package has yet to be fully determined, however, Japanese lawmakers have called for a package of around JPY 10 trillion (USD 95.5 billion). 

• The majority of the package will include around JPY 7 trillion from a JPY 10 trillion pool that the government previously set aside to address emergency needs which have arisen from the pandemic. 

Why it matters: The stimulus could provide much-needed business aid to struggling Japanese companies. Japan’s economy suffered a 7.9% contraction in the second quarter of 2020 as a result of COVID-19, a post-WW2 record. 

• The package will most likely introduce extensions to existing subsidy programs helping companies keep their employees and address funding issues.

• The plan will also extend a government campaign offering Japanese citizens discounts for domestic travel in an effort to bolster the country’s faltering tourism industry, which has been heavily affected by COVID-19. 

Government Spending: A third extra budget is expected to be compiled in mid-December to fund part of the package. 

• However, the total size of the package will most likely be significantly smaller than the two stimulus packages approved by former Prime Minister Shinzo Abe back in May and April, which consisted of JPY 117 trillion (USD 1.1 trillion) each. 

• The two previous stimulus packages passed are equal to more than 40% of the country’s total gross domestic product. 

Looking ahead: Last month, the Bank of Japan opined that it was “unlikely” for Japan’s economy to experience a significant rebound in the near future. 

•  Analysts say that this smaller stimulus package will most likely not have a substantial impact on boosting economic growth. 

•  Speaking to Reuters, Takeshi Minami, chief economist at Norinchukin Research Institute, asserted that “The size of the package isn’t expected to be that large. That means the measures will likely focus on putting a floor on growth, rather than stimulating the economy.” 

 

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