This week Japanese Prime Minister Shinzo Abe announced plans Wednesday for more than 28 trillion yen ($265 billion) in economic stimulus in an effort to prop up the nation’s economy.
The plan will include 13 trillion yen in “fiscal measures,” he said in excerpts of a speech broadcast by NHK public television. Abe added that the package would be compiled next week, but it was unclear how much of it would be new spending. His speech was given in the city of Fukuoka, 1,000 km (620 miles) southwest of Tokyo and no transcript was instantly made available.
In the days after Abe’s ruling coalition won a big victory in the upper-house election on July 10, he ordered that a stimulus package be assembled as he seeks to again recover the economy. The government is in a challenging position with limited excess funds and will probably need to issue new bonds to pay for a huge package of fiscal stimulus.
“Tax revenues aren’t rising, and the funds for an extra budget are limited,” said Yasunari Ueno, the chief market economist at Mizuho Securities Co. in Tokyo. “This is all padding,” with the government pretending it has resources even though they don’t, he said.
“Looking at what has been reported, they’re just lining up a cluster of different things. Once we see the details, I think the reaction is going to be worse,” Ueno said.
Japan’s Topix stock index has risen more than 9 percent since the election victory and the yen has weakened almost 5 percent amongst anticipation of the plan. Some economists have criticized the idea of a new spending package, saying the heavily indebted nation needs structural economic reforms and deregulation more than updated infrastructure.
There has been speculation about how large the stimulus would be, and how much new spending it would contain. The Nikkei newspaper reported on Tuesday that the plan would include 6 trillion yen of new spending, although only about 2 trillion yen of that would be in a supplementary budget to be passed this year. The government was discussing supplementary spending of about 3 trillion yen for the current fiscal year, two officials accustomed with the talks said last week.
Abe met former Federal Reserve chairman Ben S. Bernanke earlier this month and told him he wants to speed the nation’s exit from deflation, underscoring his commitment to stimulus.
Japan’s economic recovery is at risk as a slowdown in overseas demand and the yen’s surge this year are making the nation’s products less attractive overseas and hurting the earnings of exporters. Waning corporate profits may weigh on wage growth and household income, complicating the government’s attempts to revive the economy.
“We must support domestic demand and put the economic recovery on an even firmer footing,” Abe said in the comments broadcast Wednesday.
Abe’s stimulus plan comes ahead of the Bank of Japan’s policy meeting that ends Friday. Economists expect further monetary stimulus from the BOJ. Any new spending must be presented to the parliament, where approval is a formality because the ruling coalition has a majority in both houses.
Even with the new stimulus package of 28 trillion Yen without structural economic reforms and deregulation, Japan’s economy is still at risk, as a slowdown of overseas demand makes the nations products less attractive for overseas consumers and importers stated Lee Goodman investment analyst for Empire Asset Investments.