Japan is putting together a record economic stimulus package, bucking the global trend towards throttling

By Leika Kihara and Tetsushi Kajimoto

TOKYO (Reuters) – Japan unveiled a record $490 billion spending package on Friday to cushion the economic blow from the COVID-19 pandemic.

Spending has surged due to a range of disbursements, including those unrelated to the pandemic, such as cash handouts to households with youth aged 18 or younger, and is likely to spur more bond issuance this year lead.

The massive spending would underscore the determination of Prime Minister Fumio Kishida – once considered a fiscal conservative – to focus on boosting the economy and redistributing wealth to households.

“Reflationary monetary policy and the go big or go home fiscal policy pushed by (former Prime Minister) Shinzo Abe are now the orthodoxy,” said James Brady, an analyst at Teneo.

“Although Kishida has been known for his somewhat hawkish stance in the past, he appears poised to continue the Abenomics paradigm for several more years.”

The package, finalized at a Cabinet meeting on Friday, included 55.7 trillion yen ($490 billion) in spending on items ranging from cash handouts to households, subsidies for businesses hit by COVID-19 and reserves for emergency spending in connection with the pandemic.

The size of the spending was well above the market estimate of 30 trillion yen to 40 trillion yen and will be largely financed by an additional budget of around 32 trillion yen to be put together this year. The remainder is expected to be funded from next year's budget.

The total package, which includes funds that do not result in immediate spending, is expected to reach 78.9 trillion yen.

“We will mobilize all available instruments to finance the package, including issuing deficit-covering bonds,” Kishida said in a group interview. He did not say how much debt might be issued.

Critics of the package focused on its staggering scope.

“Volume inflation may have become the goal without much discretion over the effectiveness of the spending,” said Takumi Tsunoda, senior economist at Shinkin Central Bank Research Institute. “It’s a lot of wasteful spending.”

Japan has lagged behind other economies in emerging from the pandemic-induced recession, forcing policymakers to maintain massive fiscal and monetary support even as other advanced countries scale back crisis policies.

Policymakers hope the new spending will help support the economy, which shrank more than expected in the third quarter as consumption and exports were hit by pandemic-related restrictions and global supply disruptions.

Japan's three massive spending packages to combat the pandemic have left the country with outstanding long-term debt about twice the size of its $5 trillion economy.

($1 = 114.3100 yen)

(Reporting by Leika Kihara and Tetsushi Kajimoto; Additional reporting by Takaya Yamaguchi, Daniel Leussink and Kantaro Komiya; Editing by Ana Nicolaci da Costa, Stephen Coates and Kim Coghill)