Explainer: Key challenges for Japanese Prime Minister Kishida’s recovery plan

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Japan’s Prime Minister and ruling leader of the Liberal Democratic Party (LDP), Fumio Kishida, speaks during a press conference at party headquarters after his party (in coalition with the Komeito Party) won a majority in the Japanese lower house in the general election in Tokyo, Japan , November 1, 2021. Rodrigo Reyes Marin / Pool via REUTERS

TOKYO, Nov. 8 (Reuters) – Japanese Prime Minister Fumio Kishida’s pledge to provide a big boost to the economy this year faces challenges, including negotiations within his coalition and a tight timeline to ensure spending is funded.

The following are the main issues that Kishida, his ruling Liberal Democratic Party (LDP) and the Treasury Department are facing as discussions on the package begin in earnest on Monday:

WHAT’S AT STAKE?

Support for the Japanese economy is urgent as supply disruptions affect key exports for the world’s third largest economy, even if consumption has not accelerated after the COVID-19 restrictions were lifted on September 30th.

After putting huge fiscal stimulus in place last year, Japan risks a decline in the support needed to sustain the fragile recovery, Treasury Department officials say.

A delay in approving Kishida’s pledged additional budget for this year could disrupt the passage of other key laws as the regular session of parliament ends next year in time for the upper house elections this summer.

“The government hopes Parliament will pass the additional budget by the end of the year so that spending will support the economy in the first quarter of next year,” a Treasury official, knowing the matter, told Reuters.

HOW FIRM IS THE TIME FRAME?

Japan’s government and ruling bloc usually agree on additional spending plans around October, which gives the Treasury Department time to draft an additional budget to be passed before the previous funding runs out.

This time around, the schedule is tight as the procedures for creating the package and additional budget were disrupted by the October 31 general election, which confirmed Kishida’s rule weeks after he took office.

According to Kishida, the package will focus on helping households hardest hit by the COVID-19 pandemic and include steps to spread the wealth more widely among households. He gave few details about the size of the package, beyond which it will be worth hundreds of billions of dollars.

Negotiations on the details have only just begun, leaving the bureaucrats little time to draft a budget. The additional budget must go through Parliament next month to avoid a delay in the adoption of next year’s budget by the end of March of this financial year.

RISKS OF DELAY? The size and timing of the package will be affected by how smoothly the LDP and its coalition partner Komeito agree on the amount of payouts to individuals.

The government and coalition have agreed to pay about $ 900 to each person under the age of 18, which will cost the government about $ 18 billion, the Yomiuri newspaper reported on Friday.

The coalition parties will discuss details on Monday on how much to offer children, Kyodo news agency said.

The spending plan requires delicate negotiations between lawmakers and bureaucrats. As a potential signal of resistance, the ministry’s top bureaucrat, Koji Yano, recently voiced rare criticism of politicians who spend money on pork kegs.

MARKET FOCUS?

Another controversial issue will be how much debt the government will have to raise to fund the package, another area that Kishida has not elaborated on. The lack of clarity leaves economists guessing.

Some put the magnitude of stimulus spending at around 30 trillion yen ($ 260 billion), a figure once published by Kishida, but estimates vary widely.

Takashi Miwa, chief economist at Nomura Securities, expects the package to total 45 trillion yen ($ 400 billion), funded by an additional budget of one-third that size, which would spell out more than $ 5 in new national debt Trillion yen ($ 45 billion) required.

Takuya Hoshino, senior economist at the Dai-ichi Life Research Institute, forecasts a much smaller budget of 20 trillion to 30 trillion yen ($ 180 to 260 billion), but that is 10 trillion yen (90 billion US dollars) up to would require twice as much bond issuance).

($ 1 = 113.8400 yen)

Reporting by Tetsushi Kajimoto and Takaya Yamaguchi; Additional coverage by Yoshifumi Takemoto; Edited by Leika Kihara and William Mallard

Our standards: The Thomson Reuters Trust Principles.


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