Prime Minister Shinzo Abe’s Cabinet approved an economic stimulus package worth ¥28.1 trillion on Tuesday to pull Japan out of deflation and shore up the economy with infrastructure investment and enhanced welfare services.
Abe revealed the overall size of the package in a speech last week, saying more investment was needed to expand the world’s third-largest economy. He said funds would be used to provide better port facilities for cruise ships and accelerate the construction of a high-speed maglev train line.
“Not only to stimulate immediate demand, we aim to pursue sustainable economic growth led by private demand and ensure the creation of a society” in which all people can play active roles, Abe told a meeting of the government and ruling parties Tuesday.
The prime minister also pledged to maintain Japan’s fiscal consolidation goal of turning the primary balance into a surplus by fiscal 2020.
The plan includes ¥13.5 trillion in fiscal measures, including ¥7.5 trillion in new spending starting this year and ¥6 trillion in low-cost loans.
Beyond the current year’s spending, the package will be made up of fiscal measures under next year’s budget along with loans that will probably be spread over several years. The package is the latest in a long series that have had limited impact on the economy, while Abe’s promised structural reforms — tackling areas such as employment regulation — have fallen short of expectations.
The Cabinet’s approval of the policy comes as exporters grapple with the yen’s rise, Britain’s vote to leave the European Union and a slowdown in emerging economies. At the same time, concern is growing that the Bank of Japan is running out of options for further easing, after it made only minor policy adjustments at a meeting last week.
Masaki Kuwahara, an economist at Nomura Securities Co. in Tokyo, said a degree of growth could be expected from public works investment, but that such growth may not be sustainable. “What Japan needs to do is to spur more demand and increase productivity by pushing through deregulation, increasing the nation’s potential growth rate,” he said.
The government plans to submit the draft budget to an extraordinary Diet session to be convened possibly in mid-September. During the Diet session, lawmakers will deliberate a revised bill to postpone the consumption tax hike to October 2019 from April 2017.
Among the state and local government expenditures, ¥1.7 trillion will be allocated to building infrastructure to boost tourism and agriculture, while ¥2.5 trillion will be used to enhance welfare such as nursing care and child care.
The government will set aside ¥600 billion to help small- and medium-sized companies deal with any possible negative effects from Britain’s decision to leave the EU and earmark ¥2.7 trillion to rebuild areas hit by the massive earthquakes in northeastern Japan in 2011 and southwestern Japan in April.
“There is a risk of the economy slowing down” following the Brexit vote, Finance Minister Taro Aso told a news conference earlier in the day, adding the government needed to provide a financial intermediary function so small- and medium-sized companies did not have problems securing funds.
To bolster consumer spending, the government will distribute ¥15,000 in cash each to low-income earners.
Public expenditure including zaito low-interest government loans will total ¥13.5 trillion. Using the program, the government plans to bring forward the launch of high-speed maglev train services between Tokyo and Osaka from 2045.
It also aims to accelerate the construction of shinkansen train lines on other routes.
Abe is seeking to expand the economy by 20 percent by 2020. To do so, he’s pledged measures to bolster household incomes, increase the birth rate and provide more care facilities for children and the elderly.
After announcing in June he would put off an increase in the sales tax, he promised last week to tap reserves in the unemployment insurance fund to lower premiums and increase payouts.
Details of Japan’s stimulus package
The package worth ¥28.1 trillion calls for:
- Improving the working conditions of staff at nursery schools and nursing care facilities.
- Reducing employment insurance premiums shouldered by both employers and employees.
- Bringing forward the launch of high-speed maglev train services between Tokyo and Osaka from 2045.
- Promoting the development of infrastructure to boost the tourism and agricultural sectors.
- Helping small- and medium-sized companies deal with possible negative effects of Britain’s decision to exit from the European Union.
- Distributing ¥15,000 in cash each to low-income earners.