Japan injects $81 bn stimulus into its economy

Tokyo: Japan’s government agreed on a $81 billion stimulus package on Tuesday, aimed at preventing the economy from tipping back into recession as deflation persists and a strong yen threatens exports.

Economists said the 7.2 trillion yen plan, equal to about 1.5 per cent of gross domestic product, would not provide a significant lift to an economy dependent on overseas demand for machinery, electronics and cars.

While several other economies are already debating phasing out economic stimulus deployed to fight the financial crisis, Japan continues to struggle amid chronically weak consumer demand and falling prices.

The budget underscores the balancing act faced by Prime Minister Yukio Hatoyama and his Democratic Party.

The Democrats are keen to avoid a recession ahead of an upper-house election next year but are also under pressure to make good on their pledge of fiscal discipline as the country’s public debt nears 200 per cent of GDP, by far the worst among G7 nations.

“This may help the economy somewhat,” said Yasunari Ueno, chief market economist at Mizuho Securities. “But it doesn’t even begin to address the more fundamental issues facing Japan, such as weaknesses in the global economy and deflation.”

Japan pulled out of recession in April-June thanks to a recovery in exports but figures due on Wednesday are expected to show third-quarter growth was much slower than an initial estimate.

Growth is seen slowing further in the first half of next year as the effect of nearly 27 trillion yen stimulus agreed by the previous Liberal Democratic Party government, wears off.

The new package, earmarked for low-interest mortgages for new home buyers, incentives for users of “green” technologies and extended subsidies for energy-efficient cars and household appliances, aims to encourage reluctant Japanese consumers to spend more.

Analysts, however, were sceptical about the plan’s impact and while most expect Japan to avoid a double-dip recession, those who predict another slump were not swayed by the latest spending plan.

“This stimulus will have a limited impact on the economy. I don’t think we need a major change in our forecast,” said Hideki Matsumura, a senior economist at Japan Research Institute, who expects a contraction in both the first and second quarter.

“I would be surprised if the contribution to growth exceeded 0.5 percentage point,” said Simon Wong, regional economist at Standard Chartered in Hong Kong.

Source: http://ibnlive.in.com/news/japan-injects-81-bn-stimulus-into-its-economy/106717-7.html