Wed, Jul 27, 2016 - Page 10 News List

Japan stimulus expected next week

GROWTH PLAN:The Cabinet is expected to decide on the fiscal measures on Tuesday next week, with a media report saying it would involve US$57 billion in new spending

Bloomberg

Although no details of Japan’s fiscal stimulus have been formally announced, a decision on the size and content of the much-anticipated package is expected next week.

The government yesterday submitted a list of projects to the Liberal Democratic Party, although the document did not provide specifics on the potential size of the spending package or how it will be financed.

The Nikkei Shimbun yesterday reported that the plan would include ¥6 trillion (US$57 billion) of new spending, although only about ¥2 trillion of that would be in a supplementary budget to be passed this year.

“I don’t think the headline is very important, because there’s a lot of smoke and mirrors in what they put in the headline,” said Robert Feldman, chief economist at Morgan Stanley MUFG Securities Co in Tokyo. “I would actually encourage investors to focus on the so-called real demand component,” which requires going “item by item by item and calculate what’s going to be spent, when it’s going to be spent.”

The Japanese Cabinet is to make the final decision on Tuesday next week, Kyodo News said.

Looking at the political calendar, it is likely for the package to win approval in the parliament some time in October, with money starting to flow from late this year into next year.

The draft plan also calls for continued cooperation with the Bank of Japan in efforts to revive the economy. The document says the government hopes the central bank will achieve its 2 percent inflation target.

In the days after Japanese Prime Minister Shinzo Abe’s ruling coalition won a big victory in the upper-house election on July 10, he ordered that a stimulus package be compiled, as he seeks to revive economic growth.

He specified spending on regional infrastructure, such as bringing forward the construction of maglev and other high-speed train lines, and improving facilities at ports for tourist cruise ships.

Abe also met with former US Federal Reserve chairman Ben Bernanke and told him he wants to speed the nation’s exit from deflation, underscoring his commitment to stimulus.

The government was discussing supplementary spending of about ¥3 trillion for the current fiscal year, two officials familiar with the talks said last week. Japanese Chief Cabinet Secretary Yoshihide Suga in a recent interview ruled out issuing deficit bonds to fund a stimulus package, instead hinting at using construction bonds for longer-term investments.

The markets have been expecting some spending package from the government. Partly because of speculation about the stimulus plan, Japan’s TOPIX has risen 8 percent since the upper-house election. During the campaign Abe pledged to work toward raising Japan’s GDP to ¥600 trillion from ¥500 trillion, and a well-constructed initiative could provide a boost for economic growth.

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