Japan expands economic incentives

On Friday, Japanese Prime Minister Fumio Kishida instructed the government to prepare an economic stimulus package by the end of October to help minimise the impact of inflation, as economists warn against excessive spending.

Earlier this month, the Prime Minister had already expanded existing price-cutting measures, including gas subsidies and price caps on imported wheat, and added cash payments for low-income households and local government subsidies.

"It seems like we are talking about allocating 30 trillion yen ($207 billion), but I think only 5 or 6 trillion is really needed," said Shinichiro Kobayashi, chief economist at Mitsubishi UFJ Research & Consulting. "Japan's economy is not teetering on the brink of crisis, so now we need economic measures to help those who are suffering."

The order comes as financial markets are still in shock after the UK government last week outlined a wide range of tax breaks requiring heavy borrowing in an economy suffering from the worst inflation in decades.

While Japan is not expected to shock markets with a massive spending round, the additional spending will add to the feeling that the country is overly dependent on additional budgets funded at minimal interest rates.

"To talk about making the stimulus package bigger, as if it were some kind of competition, would be an act of extreme irresponsibility," said economist Atsushi Takeda of the Itochu Research Institute. "It would show that they are just looking at the chaos in the UK as some kind of fire on the other side of the river, or that they are not watching it at all."

Explaining the need for the latest stimulus, Kishida said that rising energy and food prices are hitting households, and concerns about a global recession remain a risk to Japan's economy.

According to his statement, electricity prices may rise up to 30% next spring. He said he wants to create a new system to mitigate sharp fluctuations in electricity prices, without going into details.

Specific measures will include additional support for families and firms affected by rising prices, and plans to reduce dependence on fossil fuels and chemical fertilisers. According to him, additional incentives for wage increases will also be considered. Kishida is expected to make a speech in parliament on Monday, where he can talk in more detail about his plans to stimulate the economy.