Japan is taking an unusual route to fight the inflation currently facing the country as the prime minister, Fumio Kishida has ordered an economic stimulus package of $490 billion, Bloomberg reported.
The stimulus package is expected to cause at least 1.2% drop in inflation and increase gross domestic product by 4.6% according to official sources.
The Prime Minister noted that the overall size of the package is 71.6 trillion yen ($490 billion).
This marks the latest spending spree by the government in recent years as the country continues to battle inflation while the value of the yen is also dropping. New data shows that the rise in prices this month was the highest since 1980.
However, what is most responsible for the price pressures is the decline in the value of the yen. With the yen continuously dropping, households are finding it difficult to live on a budget.
But the central bank’s refusal to raise interest rates which are still near zero is what is contributing to the drop in the country’s national currency value.
Japan Sticks With Quantitative Easing
Unlike other powerful economies that have increased interest rates in response to inflation, Japan is sticking to quantitative easing to solve the problem.
Whether this would work remains to be seen. But it would be a welcome development for the households. Most of the stimulus subsidizes energy costs for households and also reduces food prices. This means the extra spending might not contribute to more inflation.
But part of the spending will also be in the form of handouts to households. Such a move could contribute to more inflation if not properly monitored.
Unsurprisingly, Bitcoin is doing better against the Japanese Yen even though it has dropped against the dollar. One BTC is worth 3,025,171 Yen with a 1.92% increase in the last 24 hours.