Prime Minister Taro Aso on Thursday evening announced a ¥26.9 trillion economic stimulus package in an effort to minimize damage to the Japanese economy from the global financial crisis. The current economic turmoil could have a devastating effect on people's lives. As Mr. Aso said, "The economy is being battered by a once-in-a-100-years storm." The government is poised to start implementing part of the measures included in the package as soon as possible. This is a logical approach.

On Friday, the Bank of Japan cut its key interest rate from 0.5 percent to 0.3 percent and decided to implement credit-easing measures to bolster the sagging economy.

In the United States, the Federal Reserve on Wednesday cut the federal funds rate — the benchmark short-term target rate — by half a percentage point to 1 percent, the lowest since the June 2003-June 2004 period when the rate was kept at 1 percent. The Fed's action, which means a 4.25 percentage point slash of the benchmark rate in the past 13 months, testifies to the U.S. central bank authorities' apprehension about a further slowdown of the U.S. economy due to a decline in consumer spending and credit crunch for households and businesses caused by the financial market chaos.

While former Prime Minister Yasuo Fukuda was in office, the government adopted an economic stimulus package worth about ¥11.7 trillion in late August, mainly to reduce the damage to the economy from the surging energy and raw materials prices. After Mr. Aso became prime minister, the Diet passed a ¥1.81 trillion supplementary budget for fiscal 2008 earlier this month, as part of the economic package.

In view of the severity of the effect of the financial crisis on the real economy, Mr. Aso announced the new ¥26.9 trillion stimulus package only two weeks after the first supplementary budget for fiscal 2008 passed the Diet. Given the present situation, an additional stimulus package stands to reason. The package will involve ¥5 trillion in actual government fiscal spending, except for tax reductions. Mr. Aso is expected to submit the second supplementary budget to implement the economic package to the Diet in mid- to late November.

For three years to come, the government will concentrate on attaining an economic recovery through tax cuts and other economy-stimulating measures.

In a rare move as prime minister, Mr. Aso, in announcing the new economic package, asked that people accept an increase in the consumption tax rate after the three-year period to secure funds to stabilize the nation's social security system.

Mr. Aso apparently tried to give an impression to people that his administration is not engaging in pork barrel politics but is thinking of long-term policies. But it is uncertain whether people will take his statement seriously since no consensus has been formed even within the ruling coalition about the matter.

The prime minister said the government will not issue deficit-covering bonds to implement the economic package but instead will use reserve funds in special account budgets. But this will increase hidden deficits.

A special feature of the package is ¥2 trillion cash benefits to be delivered to all households. Mr. Aso explained that a family of four will receive about ¥60,000. But there is no guarantee that households will actually use the money in a manner that will increase consumer spending. The possibility that they will use the money to increase their savings in preparation for a worse time cannot be ruled out.

The government and the ruling coalition may face criticism from the opposition forces that the cash benefits are a pork barrel trick to woo voters in the runup to coming general elections.

Other features of the package include ¥30.8 trillion in credit guarantees for small and medium-size enterprises, a boost of capital infusion to local banks from the current ¥2 trillion to ¥10 trillion, expansion of tax breaks for households paying housing loans up to the largest-ever ¥6 million over a 10-year period, and extension of the current preferential treatment for capital gains tax for three more years. The government will also let local governments freely use a total of ¥1 trillion from the revenues of the road-related taxes. In addition, it will provide temporary ¥600 billion grants-in-aid to local governments for improvement of a social infrastructure.

The package includes measures that may help stabilize and strengthen the Japanese economy in the middle to long term, such as offering ¥1 million to small and medium-size firms and ¥500,000 to large firms for each nonregular worker aged 25 to 39 they hire as a permanent worker and tax reductions to promote capital investment for energy saving.

Mr. Aso made it clear that he will postpone dissolution of the Lower House for general elections. This will harden the attitude of the opposition forces.

Both the ruling and opposition blocs should realize that they must do their utmost to expand domestic demand because the slump is gathering momentum.