Japanese stimulus will likely show the true colors of Kishida’s spending

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(Bloomberg) – Prime Minister Fumio Kishida’s stronger than expected election victory paves the way for a stimulus package that points to whether he is a big spender or a budget balancer.

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Cash rebates and a revival of domestic travel subsidies will be considered for inclusion when the package rolls out in mid-November, Kishida said on Monday. The prime minister has yet to put a figure on the amount of the spending, but said it would be trillions of yen.

The tricky part will be figuring out how much new money will actually be set aside to fund spending, the key signal of Kishida’s real aggressiveness in budget support for the economy.

With a pile of unused budget funds left over from the first year of the pandemic, the Prime Minister could still throw out a big package of bills without spending any new money.

“It was a landslide victory” for the ruling Liberal Democratic Party in Kishida, Chotaro Morita, chief rate strategist at SMBC Nikko Securities, wrote in a report on Monday, suggesting the prime minister may be more frugal than his predecessors . “Now there is a good chance that the economic package is not about dramatic spending on pork barrels, but more reflects Kishida’s thinking. “

Cash distributions will likely be the centerpiece of the measures.

Komeito, the PLD’s coalition partner, pledged during the election campaign to donate 100,000 yen ($ 875) for every member of the household aged 18 or under. Kishida said on Monday he would consider handouts to support non-regular workers and families with children.

Putting the right measures in place is a major concern for Kishida to ensure voters stay on his side before another election next summer. Kishida must also win this election to strengthen his administration in the longer term.

The consensus among economists polled by Bloomberg ahead of Sunday’s vote was for measures worth around 30 trillion yen, and more if Kishida did badly. This amount is equivalent to more than 5% of the size of the economy.

The actual new spending that Kishida calls for could be much lower due to the unused stimulus of around 30.8 trillion yen. In the past, the ruling party has used the remaining funds to help inflate the size of economic measures, although that does not guarantee that Kishida will do the same.

What Bloomberg Economics Says …

“We expect Kishida to compile an additional budget worth 12 trillion yen to fund a package with an overall figure in line with his pre-election pledge of tens of billions of yen.”

– Yuki Masujima, economist

For the full report, click here

Still, if it includes the cash, it could roll out stimulus without having to issue new bonds – typically the measure by which economists gauge a package’s striking power.

This approach would make sense if Kishida seeks to limit actual spending given Japan’s huge debt. The International Monetary Fund predicts that Japan’s public debt ratio to its economy will reach 256.9% this year, the highest among developed economies.

Conversely, Kishida could choose to issue more bonds if he wants to show his spending aggressiveness.

“We don’t expect this tax package to be a game-changer for next year’s growth,” wrote Masamichi Adachi and Go Kurihara, economists at UBS Securities, in a report. “However, if Kishida manages to achieve what the public wants, it could increase the chances of winning the upper house election in July next year.”

(Add Kishida’s comments to the package)

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