Japan adopts biggest-ever stimulus worth 3% of GDP to beat recession+

TOKYO, April 10 Kyodo - Japan adopted on Friday a fresh stimulus package involving the largest-ever public fund spending worth about 3 percent of its gross domestic product, which the government says will lift Japan's growth by 2 percentage points in fiscal 2009 and pull the nation out of the current recession in fiscal 2010.

The new economy-boosting steps with 15.4 trillion yen in actual spending are
also estimated to create 400,000 to 500,000 jobs by March 2010. Prime Minister
Taro Aso announced them after a U.S. call on each of the major economies to
implement a stimulus equivalent to about 2 percent of GDP. Japan's GDP is worth
about 500 trillion yen.
A fiscal 2009 supplementary budget is scheduled to be submitted to the Diet on
April 27 to finance the package.
The planned outlays of 15.4 trillion yen will be the largest ever for a single
extra budget, far exceeding a record 7.6 trillion yen in spending implemented
by the government of Prime Minister Keizo Obuchi under a stimulus package
adopted in 1998. At that time, Japan was in the midst of a banking crisis.
The total size of the stimulus, which includes tax cuts and credit guarantees
to embattled businesses, will reach 56.8 trillion yen, also the largest ever.
Aso said at a press conference, ''In this package, we are mobilizing all the
available policy tools to provide security to the public and achieve growth.''
The measures are intended to avert a freefall of the economy, secure jobs and
alleviate people's pains, and boost Japan's future growth, he said.
Finance Minister Kaoru Yosano said at a separate news conference that the
stimulus is expected to ''prevent as many social tragedies as possible such as
job losses and bankruptcies.''
The premier also tried to brush off concerns about Japan's ever-deteriorating
fiscal condition, saying, ''Since we will carry out bold fiscal spending, we
have to be responsible for fiscal health over the medium term.''
''We have to implement tax reforms including (a hike in) the sales tax after a
recovery, so as not to pass significant debts on to our children,'' Aso said.
Japan's fiscal conditions remain the worst among developed economies and are
expected to further worsen due to the planned massive bond issuance to raise
funds for the package.
The government is planning to float new bonds worth 11 trillion yen for the new
package, bringing the total amount of new bond issuance in fiscal 2009 to a
record-high 44 trillion yen.
It is widely expected that the size of new bond issuance will exceed tax
revenues in the current business year for the first time since fiscal 1965,
when Japan resumed its government bond issuance after the end of World War II.
The rapidly worsening economy will likely slash corporate and income tax
revenues.
The additional economy-boosting measures will come on top of already adopted
stimulus measures worth 75 trillion yen in total size since last October.
Specifically, they include financial aid for jobless people, child-rearing
households and cash-strapped businesses, incentives to spur consumption of
eco-friendly vehicles and electric appliances, steps to revitalize regional
economies, as well as boosting salaries for nursing-care workers and investment
in key infrastructure.
Critics say that with the gigantic stimulus package, Aso is trying to win voter
support in an upcoming general election that must be held by the fall.
The premier said at the news conference that his plan is better than the one
formulated by the main opposition Democratic Party of Japan, because his ruling
Liberal Democratic Party can be accountable for how to finance the measures.
The DPJ has formulated a stimulus package with spending of 21 trillion yen for
the coming two years.
Yosano said earlier in the day the government will work out steps by June to
restore Japan's fiscal position through an eventual hike in the nation's
consumption tax from the current 5 percent.
He has said the government plans to float 7 trillion to 8 trillion yen worth of
deficit-covering bonds for the package. The rest of the total 11 trillion yen
in bonds will be issued in the form of construction bonds.
When combined with the 25.72 trillion yen in deficit bonds to be issued under
the initial fiscal 2009 budget, the amount of such bonds to be issued in a
single fiscal year will top 30 trillion yen for the first time in Japan.
Some economists are concerned that the massive bond issuance to finance the
gigantic economic package will stoke investor fears and trigger a sharp rise in
the nation's long-term interest rates, which would adversely affect the
economy.
Yasunari Ueno, chief market economist at Mizuho Securities Co., criticized the
Japanese government for compiling ''the most aggressive fiscal stimulus among
developed economies.'' Japan is already saddled with the heaviest debts among
rich countries.
He said the big stimulus could instead help push down Japan's growth rate in
the future because it will pass fiscal burdens on to younger generations.
Kyohei Morita, chief economist at Barclays Capital Japan Ltd., estimated that
if long-term interest rates remain high, the projected increase in the growth
rate will be trimmed from 2 points to 1.6 points due to negative effects from
higher borrowing costs.
''Fiscal measures cannot be implemented free of charge. The government should
consider both (positive and negative) effects of an economic package --
creation of demand as well as a possible adverse impact on the economy from
higher borrowing costs,'' he said.
The yield on the benchmark 10-year Japanese government bond briefly rose Friday
to a five-month intraday high on selling sparked by an expected expansion in
government bond issuance in line with massive fresh economic stimulus measures.
(Mariko Yasumoto contributed to this report)
==Kyodo
2009-04-10 22:36:33