Japan unleashes $200bn stimulus
Fumio Kishida says package will cut consumer inflation even as Bank of Japan keeps ultra-loose policy
The Japanese government on Friday unveiled Y29.1tn ($197bn) in fresh spending to ease the impact on consumers of soaring commodity prices and a falling yen, while the Bank of Japan stuck by its ultra-loose policy.
Prime minister Fumio Kishida unveiled the stimulus package, which includes subsidised electricity and gas bills for households and coupons for pregnant women, just hours after Bank of Japan governor Haruhiko Kuroda ruled out any early rise in interest rates.
Kishida said the spending package, which will cut household energy costs, was expected to bring down Japan’s consumer inflation rate by more than 1.2 percentage points. He said it would add about 4.6 per cent to real gross domestic product, but gave no timeframe.
Japan’s inflation rate, at 3 per cent in September, is much lower than price rises in the US and Europe. But Kishida has come under pressure to take tougher measures to tackle higher living costs amid a sharp fall in his public approval ratings.
Since September, Japanese authorities have carried out at least two interventions to prop up the yen, which has fallen to 32-year lows because of the widening gulf between the BoJ’s super-dovish policy and tightening by most other big central banks.
While the European Central Bank on Thursday raised interest rates to their highest level since 2009, the BoJ kept overnight rates on hold at minus 0.1 per cent and continued to cap 10-year bond yields at about zero per cent.
The widely expected BoJ decision, made at a time of exceptional volatility in currency markets, initially sent the yen slightly higher to ¥146.21 to the dollar. But the currency later fell to below ¥147 after Kuroda made clear he was not considering early action to raise interest rates.
“We are getting closer to achieving our 2 per cent [core consumer inflation] target,” Kuroda said, but added: “We are not thinking of a rate hike or an exit anytime soon.”
Japan’s central bank also announced it would increase the frequency of its bond-buying in November to defend its control of the yield curve, even though the policy of suppressing longer term interest rates has effectively choked off trading in the 10-year JGB market.
The BoJ sharply upgraded its core consumer inflation forecast to 2.9 per cent from the 2.3 per cent projected in July for the year ending March 2023, while lowering its real GDP forecast to growth of 2 per cent from 2.4 per cent. The BoJ forecast did not take into account the new stimulus spending.
But the central bank expects inflation to fall to 1.6 per cent in both fiscal 2023 and 2024. Kuroda has argued that underlying demand in the economy remained too weak for it to shift to policy tightening.
So far, Kishida has expressed support for the BoJ policy, but some analysts said the central bank might come under increasing political pressure as the government shifts its focus to tackling rising living costs.
“With the yen becoming a political issue and with the Kishida administration’s approval rate falling, it is questionable how long it can tolerate a situation where the government is carrying out interventions to stem the yen’s fall while the BoJ’s monetary policy is facing in a completely different direction,” said Tetsufumi Yamakawa, head of Japan economic research at Barclays.