Japan unveils $120 bln fiscal package to shore up growth

Marco Green
December 6, 2019

Japan is about to inject $122 billion into the economy through the newly-approved fiscal package. Offshore risk represents another source of worry for the policymakers in the country.

Prime Minister Shinzo Abe announced the 13 trillion yen ($119.7 billion) package on Thursday, the size of which had been reported previously.

Ahead of the announcement of the plan, some economists had already switched their forecasts on the BOJ's policy stance toward a holding pattern rather than additional action, taking into account the likelihood of the stimulus package and the central bank's lack of extra ammunition. The increased spending will be balanced with the reduced public debt that has grown to twice the size of the national GDP.

"Now is the time to adopt bold fiscal policy to overcome various downside risks and secure future safety while the Bank of Japan is patiently continuing powerful monetary easing".

Japan posted the lowest quarterly economic growth in a year in the July-September period with a 0.2 percent rise on an annualized basis, as the slowdown in the Chinese economy amid the trade spat with the United States dented exports. The sales tax hike and typhoon damage, combined with weak exports are the factors set to push the economy into reverse.

"Fiscal policy is a smart thing to do now is mainly because there really is not much chance for any movement of monetary policy given that there just is not any room on the monetary policy side", said Moody's Analytics economist Steve Cochrane before the package is approved.

The Japanese government has said it is considering dispatching an SDF plane and patrol vessel to monitor shipping activities and gather information, with the move planned to be independent of a USA -led coalition to guard ships traveling through the Strait of Hormuz. It will have to do so without issuing new bonds that would lead to more indebtedness.

The 26 trillion yen (239 billion US dollars) economic stimulus package, has also been allocated to support ongoing recovery and disaster prevention efforts in the wake of natural disasters, as well as to promote slumping consumer spending by promoting and incentivizing a cashless payment program, the government said.

That will require drawing from nearly 4 trillion yen in fiscal investment and loan programmes, as the government seeks to take advantage of low borrowing costs under the central bank's negative interest rate policy.

The economic package will help "ease the pain to some extent ... and keep consumption from stalling", said Shunsuke Kobayashi, senior economist at Daiwa Institute of Research.

But it will not be effective enough to boost personal spending, he said, adding that that the tax increase is expected to slash Japan's GDP by 0.4 percentage point. This analysis also takes into consideration the timeframe of the implementation of the projects and the slowdown that will be caused by the labor crunch in the country.

Other reports by Click Lancashire

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