Japan, the third-largest economy in the world, is injecting $122 billion to support its current stagnant economy. The 2020 Olympics is still by the corner, but the economy is facing economic heat, which is also fueled by offshore economic risks. The $121.50 billion (13.2 trillion yen) is expected to raise the country’s GDP by 1.4% until the end of the 2021 fiscal year.
With the rapid rise of public debt, Japan is also looking to balance the books by offsetting some of these debts with the monetary injection. The economy is looking to revive the country’s economic growth through fiscal spending.
The Japanese government issued a statement today, stating that the present economic situation requires urgent attention. The government is trying to prevent overseas risks, which may curb private consumption, capital spending, as well as exports.
According to the government, this is the time to take a bold step and adopt a fiscal policy that will help to improve the current economic situation of Japan. With the fiscal policy, the country will stand a chance of overcoming the various economic obstacles and secure a safety feature within the economy.
Japan has not rebounded after the economic slump
After the global economic downturn in July/September this year, Japan’s economy took a hit. Since then, its government has been creating measures to bring back the economy to its previous reckoning.
Retail sales were affected as it fell in October at an unprecedented level for 4 years. The sales tax hike incited shoppers to tighten their purse strings. Spending within the economy was curtailed as retailers kept their funds to themselves in anticipation of a harsher economic climate in the future.
According to Steve Cochrane, Moody’s Analytics economist, the best thing to do is to impose a fiscal policy, since there is little opportunity for monetary policy improvement. This is because there is no room for any monetary policy to work now.
If it is educational spending or infrastructural spending, these will impact on the long term projection of the economy. But the Japanese economy, right now, needs some fiscal injection to present its short term down-slide, he said.
The government is looking to take advantage of its Central Bank’s negative interest rate policy. With the injection of these trillions of yens into the economy, the annual budget for the next fiscal year will be taken care of.
Fiscal Injection could be the only solution
This single injection could increase the GDP level by 0.3-0.4%, according to Takumi Tsunoda, the senior economist at Japan’s Central Bank Research Institute.
He explained that it’s ideal for easing negative factors rather than pushing up the economy. The more pragmatic approach will yield a better result as the country plans to implement a spending poly that will inject more funds into the economy.
But when private-sector spending, credit guarantees, and government loans are included, the package could rise to about 26 trillion yen. The government’s direct spending will fund 7.6 trillion out of the total amount. According to Shinkin, this is still lower than the 28 trillion yens injected by the Japanese government in 2016 during the early phase of the Brexit vote.