Japan to unveil huge economic package to address inflation

Tokyo, Japan AFP

Japan is on Friday expected to announce an economic stimulus package that local media said could be worth $200 billion to cushion the impact of inflation and a weak yen.

Prices are rising in the world’s third-largest economy at the highest rate in eight years, although its three-percent inflation remains below the sky-high levels seen in the United States and elsewhere.

The yen has also lost over 20 percent of its value against the dollar this year, prompting authorities to intervene at least once in recent weeks, with further moves to prop up the currency suspected though unconfirmed by the government.

Details of the stimulus spending will be announced later in the day, with public broadcaster NHK and other media outlets saying it will be more than 29 trillion yen (around $200 billion).

The plans include measures to support households with energy bills, which have spiked since Russia’s invasion of Ukraine, and to encourage wage growth.

Japan — which has one of the world’s highest debt-to-GDP ratios — has already injected hundreds of billions of dollars into its economy over the past two years to support recovery from the Covid-19 pandemic.

The main driver of the yen’s steep falls is the contrast between Japan’s longstanding monetary easing policies, designed to encourage sustainable growth, and aggressive US interest-rate hikes.

The Bank of Japan is expected to maintain its ultra-loose stance in a policy decision on Friday, despite growing pressure to tweak its strategy as the yen declines.

“It’s understandable that the government is announcing new stimulus now, because Japan’s economy faces weak demand due to price rises,” Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute, told AFP.

This is “in contrast to the United States, where demand is strong, with the Fed trying to cool down inflation,” he said.

“It’s impossible that Japan would hike rates to curb inflation, for this reason,” Shinke predicted.

© Agence France-Presse