Japan approves $228 billion economic package

Japan approves $228 billion economic package
Japan's Prime Minister Shinzo Abe (L) addresses a meeting of the economy and fiscal policy council, next to Finance Minister Taro Aso (R), at Abe's office in Tokyo December 5, 2013.

TOKYO - Japanese Prime Minister Shinzo Abe's cabinet approved a US$182 billion (S$228 billion) economic package on Thursday to pull the economy out of deflation, but doubts remain about the economic impact.

The package has a headline value of 18.6 trillion yen (US$182 billion), which is an exaggerated figure as the bulk of the package includes loans from government-backed lenders and spending by local governments that was already scheduled.

The core of the package is 5.5 trillion yen in spending measures Abe ordered in October to bolster the economy ahead of a national sales-tax hike in April, and the government does not have to sell new debt to fund this spending.

The package has raised concerns that Japan's government has not broken away from the stop-gap measures and piecemeal policymaking that some say has hampered long-term growth.

"Market participants want the government to focus even more energy on economic policy," said Hiroshi Miyazaki, senior economist at Mitsubishi UFJ Morgan Stanley Securities.

"Some of these items, like reconstruction from the earthquake, were already scheduled and don't really constitute an economic strategy."

The measures approved on Thursday will add 1 percentage point to gross domestic product and create around 250,000 jobs, according to the Cabinet Office.

Miyazaki was less optimistic, saying the measures may only contribute around 0.4 percentage point as a lot of the direct government payouts to the elderly and families will go straight to savings.

The steps approved on Thursday include measures to boost competitiveness; assist women, youth and the elderly; accelerate reconstruction from the March 2011 earthquake and tsunami; and build infrastructure for the 2020 Tokyo Olympics.

The overall size of the package is on a par with Abe's 20 trillion yen burst of spending early this year as part of his campaign to end 15 years of falling prices and tepid growth.

The headline figure usually announced by the Japanese government on economic measures often includes spending that has already been committed, and tends to far exceed the amount of actual new government spending.

New debt issuance is not required as new spending will be covered by tax revenues that have exceeded initial budget projections due to the economic recovery, as well as using unspent funds from other accounts.

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