Mon, Dec 29, 2014 - Page 15 News List

Japan approves US$29bn stimulus plan

‘DEFLATIONARY MINDSET’:Stimulating consumption is key as the nation with the world’s largest debt saw worse-than-estimated falls in output and retail sales last month

Bloomberg

Shoppers crowd a narrow street in the Ameyoko shopping district in Tokyo yesterday.

Photo: AFP

The Japanese government approved a ¥3.5 trillion (US$29 billion) fiscal stimulus package to boost the economy after April’s sales tax hike caused consumption to slump.

The measures include shopping vouchers, subsidized heating fuel for the poor and low-interest loans for small businesses hurt by rising input costs, and would provide a boost to GDP of 0.7 percent, the government estimates.

The spending is to be paid for with tax revenue and unspent funds and does not require new bond issuance, Japanese Minister of State for Economic Revitalization Akira Amari said yesterday in Tokyo.

Unexpected falls in output and retail sales last month underscore the continued weakness in the Japanese economy.

With little sign of a rebound in domestic demand, getting growth back on a recovery track is a priority for Japanese Prime Minister Shinzo Abe.

“This will support private consumption and boost regional economies, so that the virtuous economic cycle spreads to all corners of the nation,” Abe said in Tokyo after the decision.

About ¥1.7 trillion is to be spent on public works in areas damaged by natural disasters and to improve disaster preparedness, with ¥600 billion for revitalizing regional economies and ¥1.2 trillion to support people and small businesses hurt by the current economic situation, according to documents released by Japan’s Cabinet Office.

The package is part of an extra budget for the fiscal year through March next year which is to be adopted by the Cabinet on Jan. 9, Japanese Deputy Prime Minister and Minister of Finance Taro Aso said in Tokyo yesterday.

The budget then needs to be approved by parliament, which is controlled by the ruling coalition.

Abe last month delayed the planned further hike in sales tax by 18 months after data showed the economy had fallen into recession. GDP shrank an annualized 1.9 percent last quarter, exceeding initial estimates, after a 6.7 percent contraction in the three months from April, when the levy was raised for the first time since 1997.

The postponement fueled concern about the government’s effort to rein in the world’s heaviest debt and prompted Moody’s Investors Service to cut its credit rating on Japan.

“Coupled with the delay of the sales tax hike, the package will be large enough to stimulate consumption,” SMBC Nikko Securities Inc analyst Hidenori Suezawa said before the announcement. “Rising tax revenue will be of some help in reining in debt but the government’s fiscal policies are making it harder to consolidate their finances.”

The Bank of Japan expanded its already unprecedented monetary easing in October, aiming to preempt any risk of a delay in ending Japan’s “deflationary mindset.” A decline in demand following the tax increase and a drop in oil prices put downward pressure on prices, the bank said.

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