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Japan plans huge stimulus package

Japan planned to unveil a huge new stimulus package as early as Friday to shore up the world’s second biggest economy, whose fragile recovery is threatened by a strong yen and deflation.

business Updated: Dec 04, 2009 15:19 IST

Japan planned to unveil a huge new stimulus package as early as Friday to shore up the world’s second biggest economy, whose fragile recovery is threatened by a strong yen and deflation.

The Nikkei business daily and Kyodo news agency, citing unnamed officials, said the package would be worth 24 trillion yen (272 billion dollars), of which 7.1 trillion yen (80.5 billion dollars) would be actual spending. The remainder would include loan guarantees and other measures that do not necessarily represent government outlays.

The government on Friday said it hoped to finalise the package in a special cabinet meeting the same day -- but media reports later said disagreements between ruling coalition parties had delayed the meeting.“There’s a possibility it won’t happen today,” said Mizuho Fukushima, head of one of the two smaller parties, the Social Democrats, Dow Jones Newswires reported.

Prime Minister Yukio Hatoyama has warned of the risk of a double-dip recession as the yen’s recent rapid rise and deflation threaten Japan’s feeble recovery from its worst postwar recession. The yen, after hitting a 14-year high of 84.82 to the dollar a week ago, was back down to around 88 to the dollar Friday as the Nikkei stock index topped 10,000 points for the first time in five weeks.

A strong yen makes the country’s exports less competitive. Earlier this week the central bank said it would inject more than 100 billion dollars into financial markets through cheap loans in an effort to boost liquidity.

The package would fund an eco-point reward programme for energy-efficient appliances, extended loan guarantees for small and mid-size businesses and spending to help recession-hit companies retain workers, the Nikkei said.

The new package will be financed by a second supplementary budget for the current fiscal year that ends in March. The centre-left Hatoyama government, which ousted a long-ruling conservative party in a landslide election in August, froze part of their predecessors’ first supplementary budget, which was worth 13.9 trillion yen.

It cited the need to slash government waste in Japan, where public debt is around 180 percent of gross domestic product, largely due to massive spending during the economic “lost decade” of the 1990s.

The Nikkei said the government would promise not to issue new bonds to finance the package except to cover tax revenue declines. Japan’s economy grew 4.8 percent on an annualised basis in the July-September quarter, the fastest growth in two and a half years, according to preliminary data from the finance ministry released last month.