Japan to craft extra ¥2.5 tril budget, aiming to ease pain of rising prices

An idea fix the economy so workers get enough money to safe and live on.

‘This easing pain short term isn’t going to work.

‘But for the Ruling party’s

The LDP was initially cautious about the compilation of an extra budget that would make the parliamentary schedule even tighter, given that an extension of the ongoing ordinary Diet session would affect the timing of the upper house election.

so they hesitate because they feel their excessive salaries don’t cover their time or re-election chances, not one word about the people, not one! It’s all about them.Subsidies left right and center but not for the workers.

‘NICE

"...the LDP acquiesced to Komeito...,"

Once again, a tiny party hardly anyone votes for calls the shots on a major spending policy while undercutting the big popular party's policy aims. Gotta love Japanese democracy!

Keiichi Ishii, secretary general of Komeito, told reporters that the size of the budget is likely to be around 2.7 trillion yen.

On a supplement budget, too. I can't wait to hear details over how the "cash handouts," the "subsidies" and the "assistance" will be handled without, in by themselves, provide additional significant inflationary headwinds. Preview: I'm not sure it can.

Yen currently trading at 128.48 as of this writing.

These programs aimed at lowering prices tend to have the opposite effect. Japan has been trying to spur inflation and keep the value of the yen week for more than a decade, and now that the yen is weak and inflation on the rise, these suddenly become problems. Increasing the money supply to fund subsidies and handouts will only make the problem worse. “Easing the pain of high prices” will only make prices higher.

Buying cheap oil and gas from our neighbor Russia would release the financial burden on companies allowing them to increase staff wages.

Japan's ruling coalition agreed Thursday to seek a supplementary budget of more than 2.5 trillion yen ($20 billion) for fiscal 2022 to cushion the impact of surging energy and food prices spurred by Russia's invasion of Ukraine.

Nice phrasing by Kyodo, as this 2.5 trillion were dedicated to the task of easing the increasing burdens on Japanese workers.

Here is a very easy prediction: Energy and food prices will still rise and workers will be squeezed with minimal to zero assistance, they will be taxed as normal or even increased and this massive budgetary amount will find most of its home here:

more subsidies for oil wholesalers to lower retail gasoline prices and financial assistance to struggling smaller firms and livestock farms

among the constituents the LDP really benefits.

More of the same. Which means all kinds of cash being handed out, some of it to us little people. If you have a house that could do with some insulation, new windows, or solar panels, a business idea you'd like a loan or subsidy money for, a subsidized power outlet for an EV, .... get yourself down the town hall and local Chamber of Commerce to see what is going. All previous stimulus packages have included money to ordinary folks for this kind of thing. It might as well be you as someone else.

@Skeptical

"...provide additional significant inflationary headwinds."

The currently rising inflation is overwhelming due to the twin global supply shocks of Ukraine and Covid, plus the weaker yen. It's a neo-lib myth that govt spending and therefore money creation create inflation spikes in developed economies.

@JeffLee: With respect, I'll leave with you an excellent article, written last year, by Mr. Adam A. Millsap, entitled The High Costs Of Too Much Government Spending. 6 Aug 2021, Forbes Magazine. There's more, but since this isn't a finance & economics forum, we can leave it at this. I'm not sure that Forbes and their contributors necessarily fits within the four walls of "neo-lib," but I guess that's for their readers to decide.

https://www.forbes.com/sites/adammillsap/2021/08/06/the-high-costs-of-too-much-government-spending/?sh=3273e87b4ad6

Petrol is already cheap here if you look at the international picture. The giant hideous nature of family "cars" now is proof of that. So we don't need to subsidise further pollution.

This is great news! With this initiative, life here in Japan will be like Heaven! We can all relax and reap the reward of knowing that the Japanese Government cares and has our backs. A whopping ¥50000 for poor families with children can now buy a lot of food and pay rent and buy new clothes as the new school year starts. Thank you Japanese Government for extending your assistance once again! [ NOT! ]

Per my earlier comments, one caveat: few economists have ventured very far into their inflationary forces crystal balls to predict future outcomes for those countries where the central bank possesses the ability to forgive sovereign debt.

Here is an interesting article on the subject, written last year, entitled The Feasibility of Sovereign Debt Cancellation. 17 April 2021, St Gallen Financial Economics Review. Enjoy the intrigue!

https://www.sgfer.org/post/the-feasibility-of-sovereign-debt-cancellation

Good job LDP! Taking care of the Japanese people. Well done!

Update.

Japan's consumer prices rose by 1.2% YOY in March, the most since October 2018, after a 0.9% gain a month earlier. The latest figure marked the 7th straight month of annual inflation, with food prices rising at the fastest pace in over 5 years (3.4% vs 2.8% in February). On a monthly basis, consumer prices went up 0.4% in March, the same pace as in February and staying at their steepest pace in five months.

Source: Ministry of Internal Affairs & Communications.

Like America, Japan is pointing its finger at Russia as the cause of higher prices. No one seems to remember that inflation in America was 7.9% before Russia invaded Ukraine. Since oil, wheat, and other commodities are priced in US dollars, inflation in America causes inflation everywhere else.

”There are no free lunches.” Americans thought their government was doing them a favor by giving them handouts, PPP and eviction moratoriums and the like. Now they are realizing there is no such thing as “free,” and every dollar doled out during the pandemic is now being more than reclaimed by inflation.

Most of the economic hardships being felt by people today are not the fault of Russia, but of the policies of their own governments. Japan is not feeling as much pain as other countries largely because Japan intervened less, enacting fewer restrictions and spending less on pandemic relief.

Good news to all the struggling families and businesses, gasoline prices started to drop where I live by almost 9 yen /ltr. from 162 yen / ltr. to 153, I was shocked by the drop but it's a well welcomed drop.

As I said many times before, the Japanese economy can't exist without more and more stimulus.

However, more and more people just rely on benefits/subsidies from the government. Just read the crime section "unemployed" did this or did that, it is just one of the examples.

Yen will lose more and more purchase power, so SELL YEN until you still can.

spurred by Russia's invasion of Ukraine.

Riiiight. Purely because of Russia's invasion. Nothing to do with the last few years...

Petrol is already cheap here if you look at the international picture. The giant hideous nature of family "cars" now is proof of that. So we don't need to subsidise further pollution.

That's a good observation. The classic family car in Japan is now is a people carrier with business-class type seats on the middle row which fully recline, but only if you don't use the rear row of seats. These are seven seater vans effectively used as four seaters. A van like a Voxy or Serena will use double the gasoline of a saloon like a Prius. In Japan, the fixed costs of car ownership are so high that gasoline does not take up a large enough proportion of the total cost of ownership, especially if tolls are also involved. The temptation is to buy the largest car you might need, not the car that uses the least oil and puts the least pollution in the air.

@kohakuebisu

Very well explained. To add on, parking is also expensive so if you pretty much own any of those family cars, you must be rich and don't need the 50,000 yen subsidy.

@Skeptical

Thanks, but the article is an opinion piece. Allow me to present an evidence-based article. It analyzes historical incidents of rapid money growth -- and concludes that rapid money supply growth (often caused by govt spending) does not cause inflation. Indeed inflation surges in recent history often occur right after money supply is stable.

"Rapid Money Supply Growth Does Not Cause Inflation"

https://privatedebtproject.org/pdp/view-articles.php?Rapid-Money-Supply-Growth-Does-Not-Cause-Inflation-28

This is pertinent to the article above, as neo libs often use the inflation scare tactic to deny working people from receiving an equitable share of national wealth.

There's an easier way to lessen the pain of rising prices for Japanese citizens, simply stop printing more money, reduce balance sheet and raise interest rate like every other nation is doing right now, and JPY will increase in value and reduce all import price. Oh wait, that will increase the pain on the government so they wouldn't be able to spend more than they earn. My bad for thinking that they actually cared about the people.

@ JeffLee:

Thank you. Interesting. I am familiar with Mr. Vague and some of his excellent work on the severe impact of huge private debt on a nation's long-term economic health.

But back to this 18 Jan 2018 article. This highlights particularly the effects of M2 on CPI of 47 countries since 1961. And his modeling showing that "that more often than not high inflation does not follow rapid money supply growth, and in contrast to this, high inflation has occurred frequently when it has not been preceded by rapid money supply growth."

The article and his data did not consider what has been seen globally since the early days of the pandamic: namly the injection of tremendous amounts of capital liquidity, along with the purchase of enormous amounts of private debt as bonds by the central banks (the Fed, for example, has purchased around $9T USD over the past several years; https://www.nasdaq.com/articles/inflation-stays-at-40-year-highs-heres-what-to-do).

There are some passages that are pertinent to Japan, and the BOJ in today's currency.

Consider:

If our observations hold, there are several implications. The most relevant of these

seems to be that the current efforts of central banks to engender inflation are unlikely to be successful. Central banks are correct in one thing: namely, in their view that stronger loan growth would add to economic growth; after all, private loan growth is a core determinant of GDP growth. But under most circumstances monetary policy has a relatively low impact on loan growth, ranking behind actual demand from borrowers (which is in part a function of how leveraged they are and therefore their capacity for more debt), the credit policy of lenders, and the capital requirements on those lenders.

This leaves unanswered the question of what causes inflation? There is of course a vast literature on this subject. Our review suggests that inflation appears more frequently in less developed countries, and that the causes of individual cases vary but generally include such factors as imbalances between supply and demand, including supply shocks on the one hand and private credit-induced demand on the other; currency exchange rates, which can cause the import of inflation; and considerations relating to the politics and political stability of the country. . . .

However, given that the conclusions on inflation put forward in this article are outside of conventional economic thinking, we are interested in receiving your feedback on these observations so we can further refine our thinking.

Conclusion

Based on our examination of countries that together constitute 91 percent of world GDP, we suggest that high inflation has infrequently followed rapid money supply growth, and in contrast to this, high inflation has occurred often when it has not been preceded by rapid money supply growth. The U.S. economy may well experience some increase in inflation in the coming year, but if it does, it is likely it will be due to factors other than monetary policy.

Thanks again.

Cash for big oil ? Really ???

The money will end up being spent on a mascot wearing a big ￥ on its chest who urges citizens to download an app that either doesn't work or sends bizarre inspirational messages at all hours while collecting their personal data to be leaked or stolen.

Print and spend more money. That will definitely fix price rises.

There's an easier way to lessen the pain of rising prices for Japanese citizens, simply stop printing more money, reduce balance sheet and raise interest rate like every other nation is doing right now, and JPY will increase in value and reduce all import price. 

We are well past the point of a sane monetary policy saving us. The action above would cause a massive recession and the increased interest would force the government (and many businesses) into default. This is why inflation is always the path chosen by politicians. They can degrade the currency and inflate the debt away while avoiding the immediate shock of a default - for which they would be blamed. With inflation, though, they can blame Russia or Covid or whatever else is handy. And the shock of economic collapse will only come somewhere down the line, hopefully after they have retired from politics so they can completely escape blame.

The cure for high prices is high prices.

Cricky

An idea fix the economy so workers get enough money to safe and live on.

‘This easing pain short term isn’t going to work.

I agree. A better idea would just be to drop the COVID restrictions, vaccine requirements, and any limits on tourists. That would be an instant influx of billions of dollars injected into the Japan economy. In 2018, tourism brought 4.5 trillion yen to Japan (41.3 billion USD). That is a lot of money into the economy. Tourist money does not take anything out of the economy, it is just money dumped into the economies.

I disagree

Japan is not adequately able to accept large numbers of tourists as the recent past has shown.

As some countries have done, limiting tourists is the way to go.

Japan is not adequately able to accept large numbers of tourists as the recent past has shown.

You should come to Japan. There are so many new hotels popping up everywhere. Pre pandemic 19,000,000 tourists. All happily accompanied and fed.

@Rodney

Is that right?

You know a lot about it being in Japan yourself then.

Why don’t you ask some Japanese people in Japan what they thought of the hordes of tourists creating chaos?

Looking forward to your findings….

What is a one time 50,000 yen per child cash handout for low-income households do? Nothing the only people that win is those who own business and the government. All its does it promote spending for a short period of time once the money runs out then what? Thrill is gone back to waiting for the next handout if any!!

Something for countries to consider going forward. 28 March 2022 from the San Francisco Fed: Why Is U.S. Inflation Higher than in Other Countries?

Problems with global supply chains and changes in spending patterns due to the COVID-19 pandemic have pushed up inflation worldwide. However, since the first half of 2021, U.S. inflation has increasingly outpaced inflation in other developed countries. Estimates suggest that fiscal support measures designed to counteract the severity of the pandemic’s economic effect may have contributed to this divergence by raising inflation about 3 percentage points by the end of 2021.

https://www.frbsf.org/wp-content/uploads/sites/4/el2022-07.pdf