Japanese Prime Minister Fumio Kishida's government approved on Friday a hefty economic package that will include about 29 trillion yen (USD 200 billion) in government spending to soften the burden of rising utility rates and food prices.
Globally surging prices and a weakening of the yen have amplified costs for imports, pushing inflation higher.
The stimulus package includes subsidies for households that are largely seen as an attempt by Kishida to lift his plunging popularity.
His government has been rocked by the ruling Liberal Democratic Party's close ties to the South Korean-based Unification church, which surfaced after the assassination of former leader Shinzo Abe in July.
“The economic measures are designed to overcome rising prices and to achieve an economic recovery,” Kishida said in a news conference. “We will protect the people's lives, jobs and businesses, and strengthen the economy for the future.”
Any market reaction to another flood of stimulus was likely already taken into account earlier in the week as share prices fell in Tokyo, with the benchmark Nikkei 225 losing 0.9 per cent to 27,105.20.
Japan has stuck to using fiscal measures, or government spending, to counter current economic challenges. While central banks around the world are raising interest rates aggressively to try to tame decades-high inflation, Japan's inflation rate is a relatively moderate 3 per cent and the greater fear is that the economy will stall, not overheat.
The Bank of Japan, which has kept its benchmark rate at minus 0.1 per cent since 2016, kept its longstanding lax monetary policy at a policy making meeting that wrapped up on Friday.
In doing so, it runs the risk of seeing the yen weaken further since the Federal Reserve is still raising rates, which tends to push the dollar higher. That in turn will raise prices in Japan since it imports much of what it consumes.
Kishida said on Friday that the government was vigilantly monitoring movements in exchange rates.
Japan has spent tens of billions of dollars in market interventions to support the yen in recent weeks as the currency sank to a 32-year low against the dollar of more than 150 yen. On Friday, it was trading near 148 yen to the dollar. At the beginning of the year, it was at about 115 yen.
Kishida said the overall size of the stimulus package, including private-sector funding and fiscal measures, is expected to amount to 71.6 trillion yen (USD 490 trillion).
The plan includes about 45,000 yen (USD 300) subsidies for household electricity and gas bills and coupons worth 100,000 yen (USD 680) for women who are pregnant or rearing babies.
“We will make sure to deliver the measures to everyone and do our utmost so that people can feel supported in their daily lives,” Kishida said earlier on Friday, after preliminary approval of the package earlier in the day.
The 29 trillion yen (USD 200 billion) spending package will be part of a supplementary budget that still must be approved by the parliament.
Kishida vowed to compile and submit a budget plan and get it approved as soon as possible.
His support ratings have sunk since July amid public criticisms over his Liberal Democratic Party's longstanding cozy ties with the Unification Church, which is accused of brainwashing adherents into making huge donations, causing financial hardships and breaking up families.
An LDP internal survey showed about half of its 400 lawmakers were tied to the church, though not as followers.
Kishida's economy minister, Daishiro Yamagiwa, was obliged to resign earlier this week because of his ties with the church and failure to explain them. He was replaced by former health minister Shigeyuki Goto.
The hefty spending package will require issuing of more government bonds, further straining Japan's worsening national debt that has piled up as the government spent heavily to counter the impact of the pandemic.
Japan now has a long-term debt exceeding 1.2 quadrillion yen (USD 8.2 trillion), or more than twice the size of its economy.