Japan PM announces $260bn stimulus package to combat rising inflation

Japan has announced a $260 billion stimulus package to help the economy bear the impact of a weak yen and inflation. However, the central bank is not ready to move away from the ultra-loose policy that has had a negative impact on the currency this year. The yen has lost 20 per cent of its value against the dollar.

"This... is a comprehensive economic package meant to combat inflation and revitalise the economy," Prime Minister Fumio Kishida told reporters.

After the cabinet approved an extra budget to partly fund the relief measures, Kishida said the government hopes the 39 trillion yen in fiscal spending will rise to 72 trillion yen when private sector investments are taken into account.

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"We want to protect people's livelihoods, employment and businesses, while strengthening our economy for the future."

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Japan is witnessing a steep rise in prices, its fastest in eight years. However, the country has a three-percent inflation rate which is less that what is being seen in the United States and other countries.

Friday's package will include measures to encourage wage growth and support households with energy bills, which have spiked since Russia's invasion of Ukraine. It is also designed to help people and businesses affected by the plummeting yen, currently at 147 against the dollar.

The Covid-19 pandemic had a negative impact on Japan's economy and it had to inject hundreds of billions of dollars into its economy over the past two years to support recovery. It also has one of the world's highest debt-to-GDP ratios.

The government spent nearly $20 billion in September to try and curb the yen's slide, besides other expensive government interventions that have happened in recent days.

The gap between the monetary policies of the US and Japanese central banks has been widening. While the Bank of Japan has kept rates ultra-low to encourage sustainable growth, the Federal Reserve has been ramping them up.

(With inputs from agencies)