Japan compiles 26 tril. yen stimulus package to prop up slowing growth

05, Dec. 2019

The Japanese government on Thursday compiled an economic stimulus package totaling 26 trillion yen ($239 billion) to prop up the domestic economy in the face of slowing global growth amid trade conflicts and a potential drop in consumption after the tax hike, sources close to the matter said.

The first stimulus package in three years centers on measures to spark consumer spending by promoting cashless settlement and public works spending to bolster infrastructure in the wake of the recent string of natural disasters, the sources said.

"We have crafted a powerful policy package aimed at...helping overcome economic downside risks," Prime Minister Shinzo Abe said in a meeting with senior officials of his government and the ruling parties.

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Abe's Cabinet is set to approve the policy package later in the day.

Japan posted the lowest quarterly economic growth in a year in the July-September period with a 0.2 percent rise on an annualized basis, as the slowdown in the Chinese economy amid the trade spat with the United States dented exports.

The world's third largest economy is now threatened by the consumption tax hike to 10 percent from 8 percent on Oct. 1, which the Bank of Japan has estimated will generate a net burden of 2.2 trillion yen on households in fiscal 2020 starting in April.

The country also faces uncertainty over the impact of the United Kingdom's planned exit from the European Union and tensions in the Middle East.

The Organization for Economic Cooperation and Development last month lowered its global forecast for global economic growth to 2.9 percent in 2020 from its previous outlook of 3.0 percent, adding that global growth could be weaker.

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As part of economic steps to spur consumer spending, the government launched a program to give rebates for cashless payments at small shops from October through June next year, for which it will set aside about 280 billion yen.

This will be followed by another measure to stimulate personal spending costing several hundred billion yen. The government is considering providing 5,000 yen worth of points to spend at stores across Japan to consumers who load 20,000 yen in their account for smartphone payments, starting in September next year, according to people familiar with the matter.

The package also includes public sector spending of 13.2 trillion yen, including low-interest loans to companies with infrastructure projects. Nearly half of the outlay will be used for reconstruction from disasters, including those caused by typhoons Faxai in September and Hagibis in October and strengthening infrastructure to reduce disaster damage.

The spending, compared to 28.1 trillion yen in the previous stimulus package in 2016, will be financed by an extra budget for fiscal 2019 as well as the fiscal 2020 budget, both of which will be drafted this month.

But economists argue that massive spending could crimp efforts such as the recent consumption tax hike to improve Japan's fiscal health, the worst among major industrialized economies.

The package also aims to improve labor conditions, support small companies and promote advanced technology development.

The government will increase job training services to help people in their 30s and 40s, the generations severely affected by Japan's deflation-hit economy from the late 1990s, land new jobs.

The government also plans to provide subsidies to small and medium-sized companies to spur their capital spending, while supplying more computers to public schools.

It seeks to support companies in developing wireless technologies that will follow 5G networks and the package will also include steps to help expand exports of farm products as a bilateral trade agreement between Tokyo and Washington is set to take effect next year.