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Japan's economy minister says government spending alone won't fill output gap

FILE PHOTO: Japan's Economy Minister Yasutoshi Nishimura attends a joint news conference with Tokyo Governor Yuriko Koike and other panel members after their talks on the latest situation of the coronavirus disease (COVID-19) outbreak, in Tokyo, Japan July 10, 2020. REUTERS/Issei Kato

TOKYO (Reuters) - Japan’s government will compile a stimulus package next week that would seek to fill slack in the economy not just with spending but incentives to boost green and digital investment, economy minister Yasutoshi Nishimura said on Wednesday.

Nishimura said it was crucial for the government to fill the economy’s 34-trillion-yen ($326 billion) output gap, caused in large part by the hit to growth from COVID-19, to prevent Japan from sliding back into deflation.

“To fill the output gap, we shouldn’t rely just on government expenditure but take policies and tax measures to boost private investment,” he told a seminar.

The government’s planned new stimulus package will also include spending for measures aimed at combating the coronavirus pandemic and building disaster-proof infrastructure, he said.

Prime Minister Yoshihide Suga is expected to announce next week the new stimulus package, which would follow a combined $2.2 trillion yen worth of two previous packages, to cushion the economic blow from COVID-19.

Government officials have said little about the size of spending, though ruling party lawmakers have called for a third extra budget of up to 30 trillion yen to fund the package.

A draft of the government’s upcoming package seen by Reuters showed Japan plans to earmark more money to promote domestic tourism and dining out in its next stimulus package, even as rising COVID-19 infections prompted concern about the campaigns.

Reporting by Leika Kihara; Editing by Chris Gallagher and Sam Holmes

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