Tokyo: Japan will spend nearly ¥13 trillion ($175 billion) to stimulate its slowing economy and to help some of the areas worst affected by Typhoon Hagibis, Prime Minister Shinzo Abe has announced.
The new spending plan is aimed at addressing a slew of economic challenges facing the longtime leader who has built his reputation on the country's stronger growth after years of stagnation.
Increasing debt to shore up economy: Japan’s Prime Minister Shinzo Abe.Credit:Kyodo/AP
But the stimulus package, if passed, would continue a cycle of borrowing and spending to stoke growth and pay for expanding social welfare costs to support a rapidly ageing population. The country already has the biggest debt load in the developed world relative to the size of its economy.
Abe's administration has pledged to reverse the borrowing trend. Just two months ago the government raised the consumption tax, similar to Australia's GST, to help shore up finances, only to see retail sales slump.
In announcing the much-anticipated package of more than ¥13 trillion, Abe told a meeting of his governing Liberal Democratic Party that the economic measures were meant to "overcome downside risks" and help the country "maintain or enhance economic viability" after the 2020 Olympics, which Tokyo will host next summer.
Japan has recently struggled as a weakening global economy and trade rifts have taken the air out of the country's recovery.
South Korean protesters attache fake Japanese banknotes on an image of Japanese Prime Minister Shinzo Abe during a rally denouncing a bill on Japan’s wartime forced labour which is being pushed by South Korea’s parliamentary speaker in front of the National Assembly in Seoul.Credit:AP
A slowdown in demand from China, a major consumer of Japanese-made assembly line equipment, has already curtailed Japan's growth, which fell below economists' expectations in the third quarter. The country has also recently felt the effects of a political spat with South Korea that has led Koreans to boycott purchases of products like Japanese beer and severely curtail tourism to Japan.
The typhoon in October, the worst to hit the country in 50 years, also exposed the need for new infrastructure to help protect the country against increasingly menacing storms and flooding in the era of climate change.
More broadly, Japan faces difficult long-term economic challenges. Its population is ageing, and its female labour force continues to suffer from deep underemployment. Some economists have argued that Japan needs more substantial structural changes to lift its economy over the longer term.
The government expects the stimulus package to lift private-sector spending by up to an additional ¥13 trillion.
The public portion of the stimulus package will be financed by government bonds and the country's general account.
Some economists said the package was smaller than expected.
"Even though the total amount seems to be big, the actual amount that the central government is injecting is not so big," said Takuya Hoshino, deputy chief economist at Daiichi Life Research Institute. "This will not be much of a power boost to the economy as the budget is not increased from the previous year."
According public broadcaster NHK, the package includes spending to reinforce riverbanks and create improved hazard maps to prepare for natural disasters, along with support for exports of agricultural and marine products.
The government also plans to hire workers who were never able to get a foothold in the full-time labour force during Japan's "lost decade" of the 1990s. And it will provide subsidies to ageing drivers to install safety equipment such as automatic brakes in their cars to help make them safer to drive.
"It makes sense in almost every regard," said John Vail, chief global strategist at Nikko Asset Management in Tokyo. "The amount is large but not too large. I don't think anyone is going to think this is profligate spending.
"Improving the ageing infrastructure and preventing loss of life from typhoon damage is money well spent," he added.
The stimulus announced on Thursday in Japan, the world's third-largest economy, is one of the largest allocations of public funds to jump-start its economy. The spending will push up the debt level, which is currently more than 2½ times the nation's total annual economic output and the largest among 188 countries.
In October, the government increased a consumption tax on a wide variety of goods and services to 10 per cent from 8 per cent in part to help pay down that enormous debt as well as to pay ballooning welfare costs that support the rapidly ageing population.
By issuing government bonds, Japan could be derailing its plan to bring down its debt at a time when the economy was still growing, albeit slowly, said Jun Saito, a senior research fellow at the Japan Center for Economic Research.
"The economy is not that bad at this point," Saito said. "There are risks of course but I am not sure if fiscal spending is appropriate at this time."
The New York Times
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