Japan approves $182-bn package to boost economy

Written by Reuters | Tokyo | Updated: Dec 6 2013, 08:22am hrs
Japanese Prime Minister Shinzo Abes cabinet approved a $182-billion package on Thursday to pull the economy out of deflation, but doubts remain about the impact.

The package has a headline value of 18.6 trillion yen ($182 billion), which is an exaggerated figure as the bulk of the package includes loans from government-backed lenders and spending by local governments that was already scheduled.

The core of the package is 5.5 trillion yen in spending measures which Abe ordered in October to bolster the economy ahead of a national sales-tax hike in April. The government does not have to sell new debt to fund this spending.

The package has raised concerns that Japans government has not broken away from the stop-gap measures and piecemeal policymaking that some say has hampered long-term growth.

Market participants want the government to focus more on economic policy, said Hiroshi Miyazaki, senior economist at Mitsubishi UFJ Morgan Stanley Securities. Some of these items, like reconstruction from the earthquake, were already scheduled and dont really constitute a strategy.

The measures approved on Thursday will add 1 percentage point to GDP and create around 250,000 jobs, according to the Cabinet Office.

There is a consensus that the sales tax hike will subtract about 2 trillion yen from GDP, so 5.5 trillion yen in spending should more than compensate, Yasutoshi Nishimura, a senior vice-minister at the Cabinet Office, told reporters.

Miyazaki was less optimistic, saying the steps may only contribute around 2 trillion yen or 0.4 percentage point as a lot of the direct government payouts to the elderly and families will go straight to savings. The steps approved include measures to boost competitiveness; assist women, youth and the elderly; accelerate reconstruction from the March 2011 earthquake and tsunami; and build infrastructure for the 2020 Tokyo Olympics.