BOJ to Boost Stimulus for Stagnant Economy

BOJ to Boost Stimulus for Stagnant Economy

BOJ to Boost Stimulus for Stagnant Economy

Japanese Prime Minister Shinzo Abe announced plans Wednesday for more than JPY 28-T ($265-B) in economic stimulus in an effort to prop up the nation’s stagnant economy.

The plan will includeJPY 13-T in “fiscal measures,” he said in excerpts of a speech broadcast by NHK public television.

Mr. Abe added that the package would be compiled next week, but it was unclear how much of it would be new spending. His speech was given in the city of Fukuoka, 1,000 km southwest of Tokyo, no transcript was made available.

In the days after Abe’s ruling coalition won a victory in the upper-house election on 10 July, he ordered that a stimulus package be compiled as he seeks to again revive the economy. The government is in a difficult position with limited excess funds and will probably need to issue new bonds to pay for a large package of fiscal stimulus.

“Tax revenues aren’t rising, and the funds for an extra budget are limited,” said the chief market economist at Mizuho Securities Co. in Tokyo. “This is all padding,” with the government pretending it has resources even though they do not, he said.

“Looking at what has been reported, they are  just lining up a bunch of different things. Once we see the details, I think the reaction is going to be worse,” he said.

Japan’s Topix stock index has risen more than 9% since the election victory and the yen has weakened almost 5% amid anticipation of the plan. Some economists have criticized the idea of a new spending package, saying the heavily indebted nation needs structural economic reforms and deregulation more than updated infrastructure.

The Nikkei newspaper reported Tuesday that the plan would include JPY 6-T of new spending, although only about JPY 2-T of that would be in a supplementary budget to be passed this year. The government was discussing supplementary spending of about JPY 3-T for the current fiscal year.

Mr. Abe met former US Fed Chairman Ben S. Bernanke earlier this month and told him he wants to speed the nation’s exit from deflation, underscoring his commitment to stimulus.

Japan’s economic recovery is at risk as a slowdown in overseas demand and the JPY’s surge this year are making the nation’s products less attractive overseas and hurting the earnings of exporters. Waning corporate profits may weigh on wage growth and household income, complicating the government’s attempts to revive the economy.

“We must support domestic demand and put the economic recovery on an even firmer footing,” Mr. Abe said in the comments broadcast Wednesday.

Mr. Abe’s stimulus plan comes ahead of the Bank of Japan’s (BOJ) policy meeting that ends Friday. Economists expect more monetary stimulus from the BOJ. Any new spending must be presented to the Parliament, where approval is a formality because the ruling coalition has a majority in both houses.

Stay tuned…

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