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Prime Minister Fumio Kishida’s government has approved a massive economic package that includes around 29 trillion yen (£172 billion) in government funding to ease the cost burden of rising utility rates and food prices.
Inflation has been rising in Japan as global prices have soared, while the yen’s depreciation against the dollar has expanded import costs.
The stimulus package includes subsidies for households that are largely seen as Mr Kishida’s attempt to boost his plummeting popularity.
His government has been shaken by the ruling Liberal Democratic Party’s close ties to the South Korea-based Unification Church, which surfaced after the July assassination of former leader Shinzo Abe.
“We will ensure that measures are delivered to everyone and do our best to make people feel supported in their daily lives,” Mr Kishida said after initial approval of the package earlier in the day.
Japan has insisted on using fiscal measures or government spending to address current economic challenges.
While central banks around the world are aggressively raising interest rates to try to control decades of high inflation, Japan’s inflation rate is relatively tame at 3%, and the bigger concern is that the economy will stagnate rather than overheat.
The Bank of Japan, which has kept its benchmark interest rate at minus 0.1 percent since 2016, maintained its long-term accommodative monetary policy at a policy-setting meeting that ended on Friday.
As a result, the yen could weaken further as the Fed is still raising interest rates, which tends to push the dollar higher. This in turn raises prices in Japan, since most of the things it consumes are imported.
Mr Kishida said the total size of the package, including private sector funding and fiscal measures, was expected to reach 71.6 trillion yen (£422 trillion).
The scheme includes subsidies of around JPY 45,000 (£258) for household electricity and gas bills, as well as coupons worth JPY 100,000 (£586) for pregnant or child-rearing women.
The 29 trillion yen spending plan will be part of the supplementary budget, but it still needs to be approved by parliament.
Mr Kishida has vowed to prepare and submit a budget plan and get approval as soon as possible.
His approval ratings have been in decline since July amid public criticism of his LDP’s long-standing friendly relationship with the Unification Church, which has been accused of brainwashing believers into making huge donations, causing financial hardship and breaking up families.
An internal LDP survey showed that about half of its 400 lawmakers were associated with churches, though not followers.
Mr. Kishida’s economy minister, Daishiro Yamaki, was forced to resign earlier this week over his ties to the church and his failure to explain them.
He was replaced by former health minister Shigeyuki Goto.
The sprawling spending plan will require the issuance of more government bonds, further adding to Japan’s deteriorating national debt, which has piled up as the government spends heavily to combat the fallout from the outbreak.
Japan’s long-term debt now exceeds 1.2 trillion yen (£7 trillion), which is more than 200% of the size of its economy.
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