Japan’s government has approved a 21.3 trillion yen ($135.5 billion) economic stimulus plan aimed at revitalizing growth and assisting households affected by inflation. The initiative, unveiled by Prime Minister Sanae Takaichi’s administration, focuses on three core objectives: tackling rising living costs, strengthening economic resilience, and enhancing national defense and diplomatic capacity. According to NHK, this marks the largest fiscal package since the pandemic era.\n\nThe measures include expanded financial transfers to local governments and direct subsidies for electricity and gas expenses. Starting in January, an average household will receive approximately 7,000 yen over three months to offset energy costs. Additionally, the government will eliminate gasoline taxes temporarily to ease consumer burdens.\n\nA significant component of the plan involves creating a decade-long fund dedicated to revitalizing Japan’s shipbuilding sector. The government also reaffirmed its commitment to increase defense expenditure to 2% of GDP by fiscal year 2027, aligning with international benchmarks.\n\nOfficials intend to fast-track a supplementary budget bill to finance these initiatives, aiming for parliamentary approval before year-end with cross-party cooperation. Despite lacking a majority, the ruling Liberal Democratic Party, in coalition with the Japan Innovation Party, holds 231 seats—just two shy of a majority in the 465-member Lower House.\n\nTakaichi emphasized that existing revenues would cover much of the spending, with any deficit addressed through government bond issuance. She noted that the volume of new bonds is expected to be lower than the 42.1 trillion yen issued last year, underscoring efforts to maintain fiscal responsibility.\n\nHowever, market reactions have been cautious. Jesper Koll, director at Monex Group, warned that the stimulus could unsettle government bond markets. Japanese 10-year JGB yields reached 1.817% on Thursday—the highest since 2008—before dipping slightly to 1.785% on Friday amid ongoing sell-offs.\n\nInflation remains a pressing concern, with October’s headline rate rising to 3%, exceeding the Bank of Japan’s 2% target for 43 consecutive months. Core inflation, excluding fresh food, also stood at 3%. BOJ Governor Kazuo Ueda highlighted risks from a weak yen, which could amplify import-driven price pressures.\n\nFinance Minister Satsuki Katayama expressed concern over currency volatility, stating she was “alarmed by recent one-sided, sharp moves in the currency market,” according to Reuters, suggesting potential intervention.\n\nEconomic contraction adds to the urgency: GDP declined 0.4% quarter-on-quarter (1.8% annualized) in the September quarter, marking the first drop in 18 months. However, October export data brought some relief, rising 3.6% year-on-year as shipments to Asia and Europe offset weaker U.S. demand.\n— news from CNBC\n\n— News Original —\nJapan announces $135 billion stimulus, NHK reports, in bid to support economy and consumers\nJapan ‘s cabinet approved a stimulus package totaling 21.3 trillion yen ($135.5 billion) on Friday, as Prime Minister Sanae Takaichi seeks to boost the country ‘s slowing economy and offer support to inflation-hit consumers. n nPublic broadcaster NHK reported that the package was based on three pillars: addressing rising prices, achieving a strong economy, and strengthening defense and diplomatic capabilities, according to a Google translation. This stimulus package is the largest since the Covid-19 pandemic, according to local media. n nThe cabinet also said it would expand local government grants, as well as provide subsidies for electricity and gas bills. The support measures will kick in January, amounting to about 7,000 yen for a standard household over a three-month period, according to the NHK report. Taxes on gasoline will be eliminated. n nJapan also plans to establish a 10-year fund to enhance its shipbuilding capabilities, and enact measures to raise defense spending to 2% of its gross domestic product by fiscal year 2027. n nThe government said it will “swiftly compile” a supplementary budget bill to fund these measures, and plans to pass it by year-end with help from opposition parties. n nThe ruling Liberal Democratic Party currently is a minority government, but is now allied with the Japan Innovation Party. Together they hold 231 seats, two short of a majority in Japan ‘s 465-seat Lower House. n nTakaichi told reporters that the government will use its revenue to fund the package, and any shortfall would be covered via issuing government bonds. n nShe said that the amount of government bonds would likely be lower than last year ‘s 42.1 trillion yen issued after the supplementary budget, emphasizing that full consideration had been given to fiscal sustainability. n nJesper Koll, expert director at Tokyo-based financial services firm Monex Group, told CNBC that Takaichi ‘s move will spook Japanese government bond markets. n nJapanese bonds have been seeing a sell-off, with yield on the benchmark 10-year JGBs hitting its highest since 2008 on Thursday, at 1.817%. It was down 3 basis points at 1.785% on Friday. n nThe stimulus package from Takaichi ‘s government comes as Japan has seen inflation consistently run above the central bank ‘s target, with statements from senior officials on price growth stoking fresh worries. n n”Income and price-support measures offer a one-off short term boost to the purchasing power of the people, but will do nothing to solve the fundamental inflation pressures,” Koll said, adding that to overcome inflation, the economy needs supply-side reform, not demand-side stimulus. n nThe headline inflation figure for October rose to 3% from 2.9%, staying above the Bank of Japan ‘s 2% target for 43 straight months, while core inflation, which strips out prices of fresh food, came in at 3%. n nBOJ Governor Kazuo Ueda told the country ‘s parliament on Friday that the central bank should be mindful that a weak yen could affect underlying inflation by pushing up import costs and broader prices. n nJapan ‘s Finance Minister Satsuki Katayama also warned of yen volatility and reportedly hinted at a possible intervention in the market, saying that she was “alarmed by recent one-sided, sharp moves in the currency market,” Reuters reported. n nInflation worries have been compounded by Japan ‘s weakening economic growth, with GDP in the three months to September contracting for the first time in six quarters. n nThe economy shrank 0.4% compared with the prior quarter, while it contracted 1.8% on an annualized basis, government data released Monday showed. n nOctober trade data, released Friday, however, offered some welcome relief to the country, with exports rising 3.6% year on year and beating expectations as shipments to Asia and Europe offset declines in goods sent to the U.S.
