Home > International Relations > Japan passes $US58b stimulus budget

Japan passes $US58b stimulus budget


The Japanese parliament on Friday passed an extra budget worth $US58 billion ($A59.11 billion) to cover a new stimulus package aimed at averting the threat of a “double-dip” recession.

The powerful lower house, dominated by Prime Minister Naoto Kan’s ruling Democratic Party of Japan, overruled a vote in the opposition-controlled upper house earlier on Friday against the budget, which amounts to 4.85 trillion yen.

The stimulus package, designed to ease concerns over deflation and a strong yen, includes job programs, welfare spending and schemes to help small businesses and infrastructure.

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The stimulus was the Kan administration’s second since it came to power.

Kan took office in June promising to slash spending and work towards cutting its massive public debt accounting for nearly 200 per cent of gross domestic product by avoiding issuing new bonds to pay for stimulus measures.

But the state of Japan’s economy has complicated Kan’s ambitions.

Exports growth is slowing, crippling deflation persists and the government has downgraded its view of the economy for the first time since February 2009.

The nation’s consumer prices slid for the 20th straight month in October, the government said Friday, a day after it said exports grew at their slowest pace of the year last month.

The figures underscored fears of a delayed exit from crippling deflation as Japan’s economic recovery loses steam.

The country has been stuck in a deflationary spiral since its asset bubble burst in the early 1990s, and consumer spending has never fully recovered to become a major driver of growth.

Thursday’s exports data provided further evidence that the country’s trade-reliant recovery is ebbing.

“Weak growth in exports could worsen corporate earnings, thus lowering household incomes to dampen consumer demand,” said Atsushi Matsumoto, economist at Mizuho Research Institute.

Analysts downplayed the likely impact of the extra budget, saying the government’s expectations of its effect on growth was over-optimistic.

“The impact of the additional spending probably will be too little to be felt” by voters, said Toshihiro Nagahama, chief economist at Dai-Ichi Life Research Institute.

“It’s still possible that Japan’s gross domestic product will contract” in the next two consecutive quarters due to slowing exports, technically putting the world’s third largest economy in recession, he said.

The extra budget would boost Japanese growth by at most 0.3 percentage points over the next year, Nagahama said, adding that the government’s forecast for a 0.6 percentage point jump was unrealistic.

The government in September approved a 915 billion yen ($A11.17 billion) stimulus package financed by reserve funds to create around 200,000 jobs and lift the country’s GDP by about 0.3 per cent, but that was criticised as insufficient.

The strong yen has hurt Japan’s exporters, making their goods more expensive and eroding overseas profits when repatriated.

A strong currency also makes imports cheaper, helping to prolong a damaging deflationary cycle where consumers hold off on purchases in the hope of further price drops, clouding future corporate investment.

Japan has reduced its official interest rate to almost zero and in September intervened in the foreign exchange market for the first time in six years to sell the surging yen.

But the moves failed to halt the Japanese currency’s ascent.

The package also comes with government financial support for corporations’ overseas investments to take advantage of the strong yen.

Source: http://news.smh.com.au/breaking-news-business/japan-passes-us58b-stimulus-budget-20101127-18azf.html

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