Japan plans $53bn stimulus as recovery faltersBy AP News Dec 12, 2013 4:45PM UTC
TOKYO (AP) — Japan’s Cabinet approved billions of dollars of stimulus spending in a supplementary budget meant to perk up a faltering economic recovery and cushion the impact of a sales tax hike next April.
The 5.5 trillion yen ($53 billion) in fresh stimulus approved Thursday is aimed at creating at least 250,000 jobs and is heavily weighted toward construction projects. It also includes 600 billion yen ($5.8 billion) in payments to home buyers and one-time payments of 10,000 yen ($100) per child to low and middle-income families.
Prime Minister Shinzo Abe promised the extra stimulus to counter a 3 percentage point increase in sales tax to 8 percent in April.
Parliamentary approval of the stimulus in early 2014 is expected since Abe’s Liberal Democratic Party and its coalition partners hold majorities in both houses.
Japan’s economy, the world’s third-largest, emerged from recession in late 2012, growing at a brisk 4.3 percent pace in the first quarter of the year. However, the pace of expansion slowed to 1.1 percent in the third quarter as corporate investment remained sluggish and exports were sapped by lackluster growth in emerging economies.
So far, the biggest driver for the recovery has been hefty government spending, which is also the type of spending the tax hike is aimed at making up for.
The economy may get a boost in coming months as consumers speed up major purchases to beat the sales tax hike. But the government has forecast a short-term contraction in the economy after the higher tax takes effect. Another increase in the sales tax, of 2 points, is expected in 2015.
Abe appears to have forced Japan out of its deflationary rut with a growth strategy centered on pumping trillions of dollars into the economy through public spending and aggressive monetary easing by the central bank.
The flood of money has helped weaken the Japanese yen, boosting corporate profits in yen terms and making exports of some Japanese manufacturers more cost competitive. It is also helping to spark inflation, thanks to rising costs for a wide range of imported commodities, from crude oil to soybeans to computer parts.
The supplementary budget approved Thursday, along with local government spending on public works and grants for lending to small enterprises, is meant to put another 18.6 trillion yen ($180 billion) into the economy. Abe says this will add a full percentage point to Japan’s gross domestic product.
The spending does not involve any new public debt since much of the money to be used was left over from previous, unspent budgetary allocations. The rest comes from taxes and other government revenues.