Japan’s government spent less on COVID-19 stimulus than headline numbers suggest

The total size of Japan’s three stimulus packages announced in 2020 exceeded an estimated ¥300 trillion—more than 50 percent of its GDP, around twice the size of US fiscal stimulus. These headline figures make Japan’s fiscal stimulus the largest of any Group of Seven (G7) nation relative to GDP. However, they include nongovernment spending and measures that are unlikely to have a direct impact on aggregate demand. Once these measures are omitted and proper adjustments for Japan’s COVID-19 Contingency Fund are made, the size of the packages shrinks to just 16 percent of Japan’s GDP, the third largest in the G7.

Japan’s headline numbers included private sector expenditures, which the government encourages through various incentives. The Fiscal Investment and Loan Program (FILP), which provided fiscal loans, industrial investment, and government guarantees to pandemic-stricken businesses, also magnified the scale of the packages but was funded by government-affiliated financial institutions. When both components are omitted, the total fiscal expenditure from local and national governments comes down to a more modest amount.

This PIIE Chart was adapted from the Egor Gornostay and Madi Sarsenbayev’s Policy Brief, “Overheating debate: Why not in Japan?”