By Leika Kihara and Tetsushi Kajimoto

TOKYO (Reuters – Japan plans to create a record $488billion spending package Friday in an effort to mitigate the impact of the COVID-19 epidemic. It is bucking a trend worldwide towards withdrawing crisis-mode stimulation measures and adding to its already strained finances.

An array of payouts, some not linked to the pandemic such as cash handouts for households with young people aged 18-26, have led to spending ballooning. Analysts predict that this will result in additional bond issuances.

This would highlight the determination of Fumio Kishida, Prime Minister (once considered favoring fiscal restraint), to put an end to massive spending and focus instead on rebalancing the economy and redistributing wealth to the households.

James Brady, an analyst with Teneo said: “The reflationary monetary policy and go big-or-go home fiscal policy pioneered [former Premier] Shinzo Abe are now the orthodoxy.”

Although Kishida was known for his hawkish tendencies in the past, he seems determined to keep the Abenomics model going for many more years.

After the paper reported that the stimulus package would include record spending, approximately 55.7 trillion Japanese yen (or $488 billion), bond yields rose on Thursday. This is much more than the 30-40 trillion estimated by the markets.

Without citing sources, the newspaper stated that the total package which does not include funds for immediate spending will probably reach 78.9 trillion Japanese yen.

According to the Asahi Shimbun newspaper, Kishida would announce the plan later Friday. He also compiled an additional budget of 32 trillion yen to cover part of the costs.

The paper stated that the government would not only issue debt but also tap into 4.5 trillion Japanese yen reserves to fund emergency spending in the event of a pandemic.

Japan is slower than other countries in overcoming pandemic-induced depressions. This has forced policymakers to continue massive fiscal and monetary support, even though other advanced nations are reversing their crisis-mode policies.

The new spending is expected to help stabilize the economy. It shrank in the third quarter because of the impact on consumption and exports due to pandemic curbs, global supply disruptions, and the increase in unemployment.

Japan has a long-term outstanding debt of roughly twice the amount of its $5 trillion economy due to three large spending programs it made in response to the pandemic.

($1 = 114.2400 yen)