Japan Economy: Cabinet Approves $900B Budget
JAPAN ECONOMY – On Friday, the cabinet of Japanese Prime Minister Shinzo Abe approved a record draft budget worth $900 billion for the next fiscal year. The boost in the budget aims to counterbalance the effect of the expected increase in sales tax. Further, this occurred amid the weakening pace of the fiscal reform.
At the beginning of April 1, the general-account budget for the year is 101.5 trillion yen ($902.3 billion). Moreover, it reveals that there was an increase in spending on welfare, public works and defense on top. This was according to the statement of the country’s Ministry of Finance on Friday.
The proposed spending level is in comparison with the initial 97.7 trillion yen for the year. Moreover, it sets a record for a seventh straight year. This is amid the struggle of Japan in trimming the welfare costs to place support concerning its fast-aging population.
Due on April, the proposed budget shows the willingness of Abe in spending hugely to avoid another economic downturn. Back in April 2014, the sales tax hike from 5% to 8% inflicted an economic downturn.
PM Abe has suspended the expected 10% increase two times already. However, he promised to go ahead in October 2019 through initiating “more than enough steps.” This action aims to soften the effect and to dodge an increase in demand ahead of the hike and a sharp pullback later.
“Abe’s government has gone too far in budget spending on sales tax painkiller. It could set a precedence that bigger fiscal spending will be called for whenever the sales tax goes up. That would delay fiscal reform even if the tax rises further,” said SMBC Nikko Securities Senior Economist Koya Miyamae.
Japan Economy: November’s consumer inflation moves at a slow pace
The annual core consumer inflation of Japan was at a slow pace. Consequently, this reinforced market expectations about the possibility of the Bank of Japan of holding off its step to pare down stimulus for a continued period. This is amid the distant pace of the prices from the BOJ’s target.
The country’s core consumer price index (CPI) is uncovering the volatile fresh food costs’ impact. Last month, there was a 0.9% increase year-on-year last month. Further, it slowed from October’s 1% gain. It was in comparison with a median market forecast for an increase of 1.0%.
The CPI is also uncovering the impact of both fresh food and energy costs. Further, it gained 0.3% last month from a year earlier. It moved slowly from the 0.4% gain in November.
The data likewise underscores the BOJ’s challenge in reaching its elusive inflation target of 2%. Meanwhile, the escalating economic risks placed uncertainty about the sufficiency of BOJ’s step to retain its current stimulus level in achieving its price goal.
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