Japan ruling coalition proposes new stimulus package to cushion economy

By Yoshifumi Takemoto and Kantaro Komiya

TOKYO (Reuters) -Japan's ruling coalition officials called on Tuesday for a fresh spending package to cushion the economic blow from the Ukraine crisis, which has hit households and retailers by driving up already rising energy and food prices.

The coalition also urged the government to offer payouts to pensioners to ease the pain from the COVID-19 pandemic, a sign Tokyo will be slow in weaning off crisis-mode support for the fragile economic recovery.

"We'll proceed with deliberations, taking into account the ruling coalition's proposal," Chief Cabinet Secretary Hirokazu Matsuno told reporters, when asked about the payout idea.

Japan must come up with measures to deal with a possible economic downturn as the war in Ukraine could aggravate the hit from rising inflation, said Tatsuo Fukuda, general council chairperson of the ruling Liberal Democratic Party (LDP).

"Given rising inflation, there's a chance Japan may experience stagflation," Fukuda told a media briefing.

In a speech at a meeting of government and ruling coalition officials, Natsuo Yamaguchi, head of the LDP's coalition partner Komeito, also proposed compiling a new stimulus package.

Soaring crude oil and food prices are having a broad impact on households, small firms and farmers, Yamaguchi said, calling for subsidies and a freeze of add-on tax charged for gasoline.

Additional spending will add to Japan's already huge public debt. It also reinforces expectations Japan will lag other nations in withdrawing massive monetary and fiscal stimulus.

While the ruling coalition has not mentioned the desirable size of spending, it said the proposed payouts should be funded by reserves set aside for emergency pandemic-related spending.

Media reports say the payouts will cost the government roughly 130 billion yen ($1.10 billion).

Japan's economy has been slow in recovering from the pandemic's hit with growth likely to have stalled in the current quarter due to weak consumption and output.

The resource-poor country is particularly vulnerable to rising import costs for fuel and food, which have hit households suffering from slow wage growth.

Prime Minister Fumio Kishida's administration has pushed back against calls for a fresh spending package, as it focuses on passing the state budget for the fiscal year beginning in April through parliament.

But Kishida is under pressure to heed calls for bigger spending ahead of an upper house election scheduled around July.

Yuichiro Tamaki, head of the opposition Democratic Party for the People, called for a package sized around 20 trillion yen.

"There's no end to demands for politically popular spending, especially ahead of elections," said Takuya Hoshino, senior economist at Dai-ichi Life Research Institute.

($1 = 117.9600 yen)

(Reporting by Yoshifumi Takemoto, Kentaro Sugiyama, Kantaro Komiya, Tetsushi Kajimoto and Daniel Leussink; Writing by Leika Kihara; Editing by Christian Schmollinger and Jacqueline Wong)

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