(Bloomberg) -- Japan needs fresh spending of about 10 trillion yen ($87 billion) to shore up its fragile economy as Russia’s invasion of Ukraine fuels global uncertainties, an economic adviser to former premier Shinzo Abe said.
“It’s better to compile an extra budget as soon as possible,” Etsuro Honda, one of the architects of Abenomics, said in an interview. “The government has to make the outlook for the economy better for businesses using fiscal measures.”
Honda’s call for more stimulus comes barely three months after Prime Minister Fumio Kishida unveiled a bigger-than-expected 56 trillion yen package to support the economy.
Still, those measures were put together before Japan suffered the setback of its worst virus wave and a spiraling of fuel costs, now sharply exacerbated by the war in Ukraine.
“What’s important now is to expand GDP by using fiscal measures effectively,” said Honda, who at one time was floated as a possible Bank of Japan governor by market participants. This is not the time for either the government or the central bank to rein in stimulus, he added.
“The government is still sticking with its target to balance the budget by fiscal 2025. That’s not only meaningless, it’s detrimental,” he said.
Even if Kishida is not entirely on the same page with ex-premier Abe or his advisers, he will likely need to keep taking action to shore up public support ahead of a national election this summer. The economy is already at risk of shrinking again as omicron restrictions and costlier utility bills limit consumption.
Kishida’s government announced a ramping up of subsidies to limit rises in gasoline prices Friday using 360 billion yen of reserved budget funds.
Oil came close to $140 a barrel Monday, making further rises in Japan’s energy bills almost inevitable. Fuel and power prices were already rising at the fastest pace in nearly 41 years in Tokyo last month.
The BOJ sees the oil surge following Russia’s invasion pushing inflation beyond its latest forecast, adding to the negative factors weighing on the economy, according to people familiar with the matter.
Other than keeping its stimulus in place, the central bank can do little to address soaring oil and cost-push inflation, said Honda, who influenced the selection of BOJ board members during Abe’s premiership.
Still, the bank’s yield curve control enables the government to spend more without the need to fret over yields, he said.
©2022 Bloomberg L.P.
Japan's Economy Needs More Spending Aid, Abenomics Advocate Says - BNN
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