Like many other nations, Japan has spent heavily to counter the pandemic. The budget for the year beginning in April contains 5 trillion yen ($47 billion) in such emergency reserves and that comes on top of three pandemic-specific economic packages, worth a combined $3 trillion, equivalent to 60% of Japan’s GDP.
The budget also reached record levels due to increases in social security spending to support its rapidly ageing population as well as record defence spending to counter threats from North Korea and China.
But Japan has the industrial world’s heaviest debt burden and analysts warn further stimulus may cause spikes in Japanese bond yields and government borrowing costs that have so far been kept low due to massive money printing from the central bank.
“Japan’s fiscal situation is already very severe. Its bond market could come under attack from investors if the lack of fiscal discipline gets out of hand,” said Kazumasa Oguro, economics professor at Hosei University.
The world’s third-largest economy is on the cusp of another slump in the current quarter due to a second state of emergency imposed this year. It has recently been lifted for many prefectures and is due to be lifted for Tokyo and its surrounding areas from early March.
Japanese government and ruling party officials are currently discussing additional cash payouts to low-income households to help them cope with the pandemic, two sources with direct knowledge of the matter have told Reuters.
Finance Minister Taro Aso has thus far resisted new spending, arguing that the government’s immediate focus is to enact the budget and emergency reserves can be tapped as needed.
Japan’s upper house is set to debate the budget this month though it cannot reject budget bills, which are enacted automatically after 30 days even if the upper house does not approve them. ($1 = 106.8700 yen) (Reporting by Tetsushi Kajimoto; Editing by Edwina Gibbs)