japan to announce economic package amid soaring inflation weak yen - Japan to announce economic package amid soaring inflation, weak yen

TOKYO – Japanese Prime Minister Fumio Kishida will unveil an economic support package next week to help struggling low-income households and small firms, as data on Friday (April 22) showed inflation soaring to a 26-month high in March.

Relief measures of about 1.5 trillion yen (S$15.6 billion) are expected to be part of an extraordinary budget worth 2.7 trillion yen. The package was approved by the ruling coalition on Thursday to cushion the blow of surging energy and food prices.

Adding to the pressure on the economy is the sharply-depreciating yen, which plunged to a 20-year low of 129.40 against the U.S. dollar earlier this week.

This has made imports more expensive, amplifying the impact of soaring commodity prices and adding to the squeeze on corporate profits and consumer budgets.

“The government must be vigilant to the impact that recent yen falls could have on households and importers,” said a draft document seen by Reuters news agency.

The weak yen, coupled with inflationary pressures, have dealt a hard blow to an economy that is more used to a deflationary mindset. Companies are breaking with longstanding custom to absorb price increments by passing on the costs to consumers.

Among others, confectionery makers Morinaga and Fujiya both said this week that they will raise prices of their ice cream and chocolate products by up to 10 per cent.

Convenience store chain Lawson said last week that it will – for the first time since its launch in 1986 – raise the price of its “Karaage-kun” fried chicken by 10 per cent to 238 yen from May 31.

While media surveys show that Mr Kishida continues to enjoy strong political support, over a stable Covid-19 situation and his government’s response to the Ukraine crisis, anxieties are rising that the growing strain on households might prove to be the undoing for the ruling Liberal Democratic Party (LDP).

A national Upper House election is expected on July 10.

The economic package is expected to include a cash handout of 50,000 yen per child for low-income households.

It will also increase subsidies for oil wholesalers to 35 yen per litre – up from the current ceiling of 25 yen – to encourage them to lower retail gasoline prices.

Small-and-medium enterprises hit by inflation, as well as livestock farms affected by surging grain and wheat prices, will also likely get financial support.

These measures come as wage hikes have largely failed to meet government targets of at least 3 per cent. Data from Japan’s largest labour union Rengo showed that as of last week, salary increments across sectors were 0.62 per cent on average.