Japan plans spending $90 billion to fund a new stimulus package

Japan is considering spending 13.9 trillion yen ($90 billion) from its general account to fund a new stimulus package aimed at mitigating the impact of rising prices on households, according to a government document reviewed by Reuters on Thursday.

The proposed spending, exceeding the 13.2 trillion yen allocated for last year's economic stimulus, is set to exacerbate Japan's already strained public finances, with debt currently twice the size of its economy.

The package also includes around 8 trillion yen for government investment and lending, as well as local government spending, putting the overall package at 39 trillion yen when private funding is included, the document showed.

The figures were also confirmed by three other government and ruling party sources, who declined to be identified as the matter has not been made public.

The stimulus package will include 30,000 yen ($193) to low-income households that are exempt from residential taxes and 20,000 yen per child for households with families, according to sources familiar with the matter.

Major hurdles over the package were cleared on Wednesday after Japan's ruling coalition agreed with a key opposition party on the draft of the package.

"I'm not sure whether the economic package of this size is necessary now, when there are emerging signs that private consumption is picking up and real wage growth is turning positive," said Takayuki Sueyoshi, senior economist at Daiwa Institute of Research.

Sueyoshi also said that Japan's goal of running a primary budget surplus in the next fiscal year would now be hard to fulfil.

The government estimated in July that Japan would achieve a primary budget surplus of 0.8 billion yen in fiscal 2025, which means tax revenues will slightly exceed expenditures.

In the past, Japan has used supplementary budgets, typically worth a few trillion yen, to deal with one-off, emergency spending, such as disaster relief. That changed in 2020, when the size ballooned to 73 trillion yen to combat the COVID-19 pandemic.

Since then, Japan has continued to compile outsized, largely debt-funded, supplementary budgets. Last year, nearly 9 trillion yen of the 13-trillion-yen spending was funded by new debt.

The scale of new bonds Japan would need to issue remains unclear. Last year, the government issued close to 9 trillion yen in bonds for the supplementary budget.

The International Monetary Fund has warned that Japan must fund any additional spending plans within its budget rather than issue more debt, urging the government to get its fiscal house in order as the Bank of Japan shifts away from its decade-long stimulus programme.

The monetary policy shift means the government can no longer rely on ultra-low borrowing costs and on the central bank to effectively bankroll debt.

The finance ministry sets the assumed interest rate for the year starting next April at 2.1 per cent, up from the current year's 1.9 per cent, boosting debt-servicing costs for interest payments and debt redemption to 28.9 trillion yen from 27 trillion yen for the current year.

Japanese shares closed lower on Thursday as technology stocks tracked the Nasdaq's overnight decline, while financials rose amid bets for a Bank of Japan interest rate hike.

The Nikkei fell 0.85 per cent to 38,026.17, while the broader Topix slipped 0.57% to 2,682.81.
"Chip-related shares tracked US equities lower, but overall, the market struggled to find market-moving cues after Nvidia reported its earnings," said Shingo Ide, chief equity strategist at NLI Research Institute.

The tech-heavy Nasdaq closed lower on Wednesday, taking a break from the prior session's rally, as investors worried about escalating Russia-Ukraine tensions and weak results from Target.
AI darling Nvidia fell 0.76 per cent during the regular trading session ahead of its results on Wednesday. It fell further after the bell, as its fourth-quarter revenue forecast failed to meet lofty expectations of some investors.

Nvidia's outlook is key for the Nikkei share average, which is heavily influenced by movements in chip-related stocks such as chip-testing equipment maker Advantest.

On Thursday, Advantest fell 1.64 per cent and chip-making equipment maker Tokyo Electron lost 0.41 per cent. Technology start-up investor SoftBank Group fell 1.1 per cent.

Financial shares rose as bets for a BOJ policy rate hike lifted bond yields.
Mizuho Financial Group rose 1.32 per cent and Resona Holdings climbed 1.84%. The banking index

edged up 0.18 per cent and was one of the three sub-indexes that rose among the 33 industry groups on the Tokyo Stock Exchange.

Tokyo Gas rose 4.94 per cent to become the biggest percentage gainer on the Nikkei, following a 13 per cent surge in the previous session. US activist investor Elliott Management has taken a 5.03 per cent stake in the country's biggest city gas provider.

Japanese government bond yields jumped on Thursday as comments from the Bank of Japan chief raised bets of an early rate hike.

The five-year yield rose to 0.75 per cent, its highest level since June 2009, and was last up 3.5 basis points (bps) at 0.745 per cent.

The two-year JGB yield rose 2.5 bps to 0.575. The 10-year JGB yield rose 3 bps to 1.095 per cent, its highest since July 25.

BOJ Governor Kazuo Ueda said there is still a month to go till the next policy meeting and there will be more information available by then.

Meanwhile foreign investors purchased Japanese stocks for an eighth successive week, encouraged by a weaker yen and earnings upgrades by major domestic lenders, though a broader correction in stock markets tempered inflows.

Foreigners net acquired Japanese stocks worth 127.6 billion yen ($823.5 million) in the week through Nov. 16, according to Ministry of Finance data.

This is the longest weekly inflow streak in nearly a year, when they bought stocks for nine straight weeks through Nov. 25, 2023.

Exchange data showed that foreigners snapped up about 152.13 billion yen worth of cash equities on a net basis but sold a net 107.94 billion yen worth of derivative contracts. They had net bought derivatives worth 577.36 billion yen in the previous week. Japan's Nikkei stock index fell 2.17% last week as investors ditched technology stocks on prospects of a slower pace of US Federal Reserve rate cuts.

Foreigners have purchased a net 2.62 trillion yen worth of Japanese shares so far this year, compared with about 4.54 trillion yen worth of net accumulations in the same period last year.
They pumped 1.16 trillion yen into long-term bonds last week, the most for a week since Oct. 5, but divested 1.64 trillion yen worth of short-term bills.

At the same time, Japanese investors bought a net 169.1 billion yen worth of foreign stocks after being sellers in the five weeks prior.

They, however, sold long-term foreign bonds to the tune of 966.9 billion yen, following 1.72 trillion yen worth of net purchases in the prior week.