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Japan expects its latest stimulus package to boost the economy by 3.6%, but analysts warn the figure should be treated with caution.

Prime Minister Yoshihide Suga’s administration has said its ¥73.6 trillion set of measures would have more of an impact than either of its larger packages earlier in the year.

That assertion comes despite a view held by many economists that the dollar-for-dollar impact of stimulus typically decreases as time passes from a crisis or recession.

While doubling the length of the government’s Go To Travel campaign and spending on public works will have a direct impact, incentivizing firms to restructure and adopt or develop green and digital technology will take longer, economists have said. Among economists Bloomberg contacted who gave an estimate, none saw the impact reaching much beyond 1% in the year ending March 2022.

“3.6% is just too big,” said economist Harumi Taguchi at IHS Markit. “It’s only to be expected that after two large extra budgets the impact of further stimulus will be smaller over time.”

Around 70% of the package is aimed at growth strategies such as digitalizing the post-pandemic economy and making it greener. To speed up digitalization, the government will bring a host of administrative services online, widen the range of services accessible via My Number cards and promote the use of technology in education.

The government will also support small and medium-sized firms making efforts to adapt their business models to the COVID-19 age.

“The latest package is aimed at supporting business sentiment to reduce the downside risks for the economy, but its direct impact on the economy will clearly be smaller than the previous two extra budgets as we reach a new stage in the pandemic,” said Bloomberg economist Yuki Masujima. “We expect it to add 0.5 percentage point to growth in fiscal 2021.”

The package establishes a ¥2 trillion fund for developing green technologies over the next decade, focusing on areas such as next-generation batteries, hydropower and carbon recycling.

“If the economic structure truly changes, then this is a positive strategy over the long run,” said Taguchi.

The Cabinet Office has calculated the direct boost to the economy at ¥20.1 trillion, with a large part of it coming through the end of March 2022. That is equivalent to about 3.6% of gross domestic product.

Of that figure, ¥16.5 trillion would stem from direct central government spending, with the rest coming from the private sector and regional governments, officials have said.

The economic boost will outweigh the 2% projected impact of the second extra budget and the estimated 3.3% support from the first extra budget, according to the government.

An official at the Cabinet Office explained that the greater share of loans and the partial saving of cash handouts weakened the effect of previous measures. The ¥10 trillion of reserve funds allotted in the second budget weren’t included in calculations either, he added.

Economist Koya Miyamae at SMBC Nikko Securities Inc. said he was in favor of the content of the latest package as it encourages firms and households to take action, rather than simply handing them cash.

“Still, the short term impact isn’t that large,” he said. “The positive effect on fiscal 2021 GDP probably won’t reach 1% even if you’re looking at it optimistically.”

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