After the ruling party scored a convincing victory in Sunday’s upper house election, the focus now turns to Japanese Prime Minister Shinzo Abe’s plans for fiscal stimulus.

Details of the scale and financing of the package remain unclear, though Abe pledged to take “broad, bold” measures to support the economy on June 1 as he announced a delay to a planned sales-tax increase. Abe said that tomorrow he will order ministers to begin compiling the stimulus package. One of his advisers has said that should be 20 trillion yen ($199 billion) in the current fiscal year.

Abe on Sunday night, as his coalition was sealing a majority, repeated his pledge for action on a stimulus package, saying on public broadcaster NHK that “I want the swift formulation of comprehensive, bold economic measures,” while declining to comment on the amount of such stimulus.

QuickTake Abenomics

Lower-than-projected tax revenue and a 778 billion yen aid package after a series of earthquakes in the Kumamoto area in April means there’s not a lot of leftover money in the budget to finance stimulus. The Ministry of Finance said funds remaining from fiscal 2015 leave about 250 billion yen available for additional spending. Also, the decision to postpone the levy hike until October 2019 means that new sources of tax revenue are unlikely to appear in the near term.

Spurring Growth

Abe also made it clear in comments Sunday night that he’ll attempt to spur economic growth through spending. “The theme of the autumn parliament will be to push ahead with economic policy, in other words to speed up the escape from deflation,” he said on a live-streaming website. “That’s what’s needed.”

The Liberal Democratic Party secured 56 of the 121 seats in contention, public broadcaster NHK said, while junior coalition partner Komeito had 14. Alongside others who support Abe’s view on constitutional revision, plus uncontested seats, the prime minister is set for a super majority, it said.

The world’s third-largest economy has struggled to find a sustainable growth strategy, and has contracted in five of the past 10 quarters. A fiscal package could provide a welcome boost, yet Japan must also find a medium-term path to fiscal consolidation. Stimulus, if funded by debt issuance, would make that more difficult, analysts say.

Fiscal stimulus can aid consolidation, according to Matthew Goodman, senior adviser for Asian economics at the Center for Strategic and International Studies in Washington, by expanding the gross domestic product enough to bring down the debt-to-GDP ratio.

‘Consistency’ Challenge

“The challenge is consistency,” Goodman said in an e-mail before Sunday’s election. “In the past, the government of Japan has sometimes switched too quickly” from stimulus to austerity, which can undermine the initial effects of the package, he said.

Abe faces no shortage of skeptics as he makes the case for a more active policy. One concern is that stimulus will become commonplace.

“The economy isn’t improving, but it isn’t getting worse,” said Koya Miyamae, an economist at SMBC Nikko Securities Inc. in Tokyo. “In a stable economy, if you introduce big amounts of stimulus, you’ll have to keep up that level of spending.”

Economic Impact

Others see stimulus helping but doubt there will be an appreciable economic impact. “It’s better than doing nothing, but it’s difficult to think this will lift up the economy,” Masaki Kuwahara, senior economist at Nomura Securities Co. in Tokyo, said in a phone interview.

The International Monetary Fund also recently chimed in, noting in its annual economic assessment of Japan that the “stop-go nature of fiscal policy, with yearly supplementary budgets,” is contributing to policy uncertainty. It would be better, the IMF maintained, to have more predictable fiscal policy timelines, including regular and gradual increases in the consumption tax.

Spurring sustained growth is likely to have political benefits for Abe, who will have to call an election in the more powerful lower house in the next two years.

Stephen Church, an analyst at Haitong International Research in Tokyo, wrote in a note that Abe “has to carry the electorate with him in order to achieve the outstanding objective” of a revised constitution. “It would be fair to say that he is doing the right thing for the wrong reason,” Church said.

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— With assistance by Isabel Reynolds