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. Last Updated: 07/27/2016

Japan Sets $171Bln Package




TOKYO -- Japan on Thursday announced its ninth hefty economic stimulus package of the decade aimed at ensuring a sprouting economic recovery gains strength in the run-up to a general election due in less than a year.


Prime Minister Keizo Obuchi said his "measures for an economic rebirth" were worth 18 trillion yen ($171 billion), including traditional public works spending, credit guarantees for small firms and a controversial nursing care scheme.


But economists said the headline figure was inflated to impress voters, and the volume of direct outlays was actually lower than financial markets had expected.


The yen eased as market participants saw no real surprise in the package, while Tokyo stock prices weakened after setting a two-year high on high-tech share buying.


Despite the large headline figure, direct fiscal spending included in the package was at the bottom of expectations at 6.5 trillion yen ($62 billion). Of that, 900 billion yen will pay for a delay in collecting levies for a planned nursing care scheme.


Economists said this core spending would keep money flowing for public works at roughly last year's levels but would not provide extra stimulus.


Economic Planning Agency chief Taichi Sakaiya said he expected the package would expand gross domestic product by 2.5 percent over the next 12 months. The election for parliament's lower house must be held by next October.


Among the main pillars of the package will be spending to improve telecommunication networks, steps to ease joblessness, money for housing loans, measures to promote venture start-ups and accelerate deregulation. It also urged the Bank of Japan to adopt a flexible monetary policy.


The EPA nudged up its projection for the current 1999/2000 year to 0.6 percent from the original estimate of 0.5 percent.


"The economy is gradually improving, but private demand is still weak," Sakaiya told a news conference. "We would like to give another push or two to get the economy on the recovery track."


That would come late next year if the private sector manages to take over from the government as the growth engine for the world's second-biggest economy, which is still recovering painfully slowly from its deepest recession in half a century.


This is the ninth government package since the collapse of Japan's asset-inflated bubble economy of the 1980s. The cumulative total of the measures is an eye-popping 125 trillion yen ($1.19 trillion), but economists said this number had to be interpreted with caution.


As with past packages, the lion's share of the latest plan is a political grab-bag of elusive figures that include reserves and guarantees that can be drawn upon if needed, multi-year spending projects for which only a portion is budgeted now, and measures financed by local governments.


Many economists said some public works spending was needed to avoid applying the brakes too soon to Japan's recovery, but others said it was larded with old-fashioned pork-barrel spending and fretted that it would further bloat Japan's huge public debt. Japan's gross government debt has doubled to 118 percent of national income since 1992 and is the highest among the 29 industrial nations of the Organization for Economic Cooperation and Development.