Japan's ruling coalition agreed Wednesday to compile a fresh stimulus package to cushion the economic blow of surging fuel and grain prices caused by the war in Ukraine.
Prime Minister Fumio Kishida, who heads the ruling Liberal Democratic Party (LDP), said the government will consider an additional package as prices continue to rise and the Ukraine crisis heightens uncertainty over the outlook, according to Natsuo Yamaguchi, leader of the LDP's ruling coalition Komeito.
Kishida "was clear that there needs to be an economic package," Yamaguchi told reporters after meeting the prime minister.
The war in Ukraine has triggered a rise in fuel and raw material costs which, coupled with a weak yen, have pushed up the cost of imported goods in a blow to Japan's fragile economy.
Even before Tuesday's parliamentary approval of a record state budget for the 2022 fiscal year, Kishida has been under pressure from politicians to ramp up spending ahead of an Upper House election scheduled for this summer.
Additional spending will boost Japan's already huge public debt and keep the country reliant on government support, even as many advanced nations wean their economies off stimulus measures deployed during the COVID-19 crisis.
Kishida will instruct his Cabinet this month to compile the package and will likely tap ¥5.5 trillion ($45.41 billion) in reserves set aside under the fiscal 2022 budget, instead of compiling an extra budget, the Nikkei paper said Wednesday.
But Yamaguchi said Komeito wants the government to use not just the reserves but additional funds through an extra budget.
"The stimulus package could come in two stages," with the first funded by reserves and the second by an extra budget that will pass parliament after the election, said Toru Suehiro, senior economist at Daiwa Securities.
"Combined, the total size of the package could near ¥20 trillion," he added.