Prime Minister Yoshihide Suga has doubled down on his bet that promoting domestic travel will keep the economy on a recovery path and that his tenure as leader will continue beyond a single year.
Despite a resurgence in COVID-19 infections that some observers have blamed on Suga’s Go To Travel campaign, the government on Tuesday unveiled a six-month extension of the program as part of an economic stimulus package with an overall value of ¥73.6 trillion.
The latest package, to be funded by a third extra budget and next year’s annual budget, also extends an enhanced furlough program while providing support for medical facilities, homes for older people and cash handouts for single parent families. The move adds to an IMF tally of $12 trillion in global stimulus this year.
Japan's package also looks to shore up corporate cash flows, and promote the development of green and digital technology, two areas Suga is looking to make central themes of his tenure.
The prime minister said the measures would boost the economy by 3.6 percentage points, but didn’t clarify the yardstick or time period he was referring to.
Suga is trying to shore up an economy expected to lose momentum after it clawed back about half of its pandemic losses during faster-than-initially estimated growth in the summer.
With support for his Cabinet falling amid the uptick in virus cases, he needs to balance the need to prop up growth against the risk of fanning the outbreak.
"Suga is taking a strong stance on Go To Travel, but I support him given that he must keep pursuing a balance between the pandemic and the economy,” said economist Yuichi Kodama at Meiji Yasuda Research Institute. Helping the economy through the private sector, via the program, is a more efficient and less costly alternative to cash handouts, he added.
"Still, Suga had to inflate the overall size of the economic package because he’s being criticized for being behind on counter-virus measures,” Kodama said.
The resurgence in COVID-19 cases to record infection levels at home and abroad is already clouding the outlook despite improving exports, household spending and bankruptcies — which are down from a year earlier as companies take advantage of government and Bank of Japan loan programs.
Sentiment data out Tuesday showed the outlook among consumer-orientated small businesses had plunged back to the level seen in May, when the nation started to emerge from its state of emergency.
The Cabinet Office Economy Watchers survey often follows a similar trajectory to the BOJ’s closely watched tankan survey of business sentiment, due out Monday.
The stimulus package has an overall value of ¥73.6 trillion and fiscal measures — typically, loans, investment and spending — of around ¥40 trillion. The national cost of the public spending would reach ¥30.6 trillion over the next 15 months, with ¥19.2 trillion coming from an upcoming third extra budget, excluding special funds, the government said.
"A problem with trying to support an economy with round after round of fiscal stimulus — each subsequent spending spree, no matter how well targeted, tends to pack less punch. That’s something Japanese Prime Minister Yoshihide Suga will likely find out,” said Bloomberg economist Yuki Masujima.
The latest measures are smaller in scale than the funding seen in two extra budgets so far this year. Those budgets added ¥58 trillion of additional spending, equivalent to around 11.3% of the size of the economy. The extra outlays could take that figure closer to 14%.
Suga’s intention to continue with the travel campaign suggests he expects the government to be able to keep the virus under control and that the economy will benefit from the program as the situation improves next year.
Through mid-November, 52.6 million hotel nights had already been subsidized by 35% under the discount program. Suga has repeatedly defended the initiative, emphasizing Friday that around 9 million people work in travel and related industries in the nation.
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