On 21st November, the Japanese Cabinet passed a 21.3 trillion yen ($135.4 billion) stimulus package to aid in jump-starting the economy by means of expansionary government spending, as well as to alleviate the effects of higher prices.

New Prime Minister Sanae Takaichi has been promising to stimulate government expenditure after assuming office last month, even though their actions are likely to slow efforts to reduce the national debt of Japan, which is an estimated three times bigger than the Japanese economy.

Takiichi informed the press that the package is meant to help her realize her promises in a short time.

“We will transform concerns to hope through prudent expenditure, and this will result in a robust economy,” she said.

“The latter should now build up national strength by expansionary expenditure, prudent expenditure, and not by unduly contractionary policy to harm us,” she said.

The expenditure package is much larger than that during the years before the COVID-19 pandemic and is also intended in part to offset the effect of increased U.S. tariffs on Japanese exports into America during the presidency of Donald Trump.

The government reported that exports to the U.S. dropped in October for the seventh consecutive month, but shipments to the rest of the world have increased 3.7% in part due to increased exports to the rest of Asia.

During recent days, Japanese government bonds have been sold off, and this has driven the yields much higher, and the Yen has dropped to almost its lowest point this year.

There has been another blow to share prices as renewed tensions with China have ensued following comments made by Takiichi that infuriated Beijing, eliciting counter reactions such as advisory warnings to Chinese tourists and students not to travel to Japan.

The Nikkei 225 index dropped by 2.4% on Friday, and it was largely caused by the significant selling of technology stocks.

The generous spending package passed Friday contains subsidies on the energy prices, a reduction in the gasoline taxation, and other initiatives to provide assistance to consumers who are unable to cope with the increasing cost of living. According to the government, core inflation, which was reported on Friday, was 3% in October without volatile food expenses, which was above the aimed 2% of the central bank.

Particular subsidies would be a one-time cash payment of 20,000 yen (approximately 130) per child, which would cost the government some 400 billion yen (approximately 2.6 billion US dollars), and the issuing of 3,000 yen (approximately 20) rice vouchers or other coupons to be distributed by local governments.

To finance the package, the Takiichi government has to prepare a supplementary budget and pass it through the parliament by the close of this year. That is one of the greatest challenges to her ruling coalition that has no majority in the Upper and Lower houses of the Diet.

Takiichi replaced his predecessor, Shigeru Ishiba, who was virtually disavowed by his party comrades following major elections that made him lose support of the voters because of his minority government’s slow response to the rising prices and dwindling wages.

Being the first woman to serve as a prime minister in Japan, Takaichi has thus far been enjoying equal amounts of popular support due to the fact that she may be able to disrupt the gerontocratic politics in Japan. However, the fact that she has a minority government means that she must have the opposition parties to pass her supplementary budget and spending package.

Critics and observers of the actions by the opposition legislators have cast doubt on whether the package will prove to be effective in achieving its objectives. One of them is to reduce consumer prices marginally by reducing energy prices. Any effect on inflation is likely to be temporary because more demand for the other stimulus would be likely to push prices up.

The package will also boost the gross domestic product of Japan by 24 trillion yen (155 billion) or 1.4 per cent. Per year, as per the Cabinet Office.

The economy of Japan, which is the fourth largest in the world, shrank at a rate of 1.8% over July-September.