Tetsushi and Takaya Yamaguchi

TOKYO (Reuters – Fumio, Japan’s Prime Minister, has a difficult task in delivering on his pledge of a large economic stimulus for this year. He must negotiate within his coalition as well as a strict schedule to obtain funding.

Here are the key issues facing Kishida’s ruling Liberal Democratic Party (LDP), and the Finance Ministry, as negotiations on the package start on Monday.

WHAT IS AT RISK?

It is imperative to support Japan’s economy as supply disruptions have harmed mainstay exports of the third-largest economy in the world, even though consumption has not increased since the September 30th lifting COVID-19 curbs.

Officials from the finance ministry say Japan is at risk of losing its massive fiscal stimulus.

A delay in the approval of Kishida’s promise for an extra budget this year may hinder passage of key legislation. The regular session next year of parliament must conclude in time to allow for a summer upper-house election.

According to Reuters, a source familiar with the situation said that “the government hopes for Parliament to approve the additional budget by the year’s end in order that spending would support the economy during the first quarter next year.”

WHAT IS THE TIMEFRAME PRECEDENTIAL?

Japan’s ruling bloc and government usually reach an agreement on spending increases around October. This gives the finance ministry enough time to prepare a budget that can be passed before any funding is exhausted.

Because of the disruptions in the Oct. 31 general elections, procedures for crafting the package and the extra budget, this schedule will be tight.

Kishida claims that the package will be focused on households affected the most by the COVID-19 pandemic. It also includes steps to increase wealth distribution. The package will cost several hundred billion dollars, but he has not provided any details beyond the fact that the amount of it is substantial.

Now is the time when negotiations on details have begun. This leaves little time for bureaucrats and budget writers to create a draft budget. To avoid delays in passing next month’s extra budget, parliament must approve it.

DELAYS RISKS

On Friday, Yomiuri published that both the government and the coalition had agreed to each individual up to age 18 to receive $900. It cost $18B.

Kyodo news agency reported that Monday is the day when coalition parties will be discussing details about how much they can offer their children.

It will take delicate negotiations between legislators and bureaucrats to create the spending plan. Koji Yano (the ministry’s top-ranking bureaucrat) recently criticized politicians for engaging in pork barrel spending.

MARKET FOCUS?

A second issue that will remain contentious is how much debt the government needs to issue in order to pay for the package. This area has been left unexplored by Kishida. Economics are still left in the dark about this lack of clarity.

Some estimate that the amount of stimulus spending is around 30 trillion Japanese yen (or $260 billion). This figure was once proposed by Kishida but there are many estimates.

Takashi Miwa (chief economist, Nomura Securities) expects that the package will total 45 trillion Yuan ($400 Billion). This extra budget, one-third of its size, would need to be used for the issuing of additional government debt in excess 5 trillion yen ($45 Billion).

Senior economist at Dai-ichi Life Research Institute TakuyaHoshino predicts that the budget will be between 20 and 30 trillion yen ($180-$260billion), but would need to issue bonds at 10 trillion trillion yen ($90billion).

($1 = 113.8400 yen)