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Thursday, 10 January 2013
Japan’s Abe Unveils 10.3 Trillion Yen Fiscal Boost to Growth
By Keiko Ujikane & Mayumi Otsuma - Jan 11, 2013 6:08 AM GMT+0400 Shinzo Abe Announces $116 Billion Stimulus Package Related video: http://bloom.bg/WUFImO
The Japanese government will spend 10.3 trillion yen ($116 billion) to drive a recovery from a recession in Prime Minister Shinzo Abe’s first major policy initiative to end deflation and boost growth.
Shinzo Abe, Japan's prime minister, speaks during a news conference at the prime minister's official residence in Tokyo, Japan. Photographer: Katsumi Kasahara/Pool via Bloomberg
A worker labors on a construction site for a hospital in Tokyo, Japan. The Japanese government will compile a 13.1 trillion yen extra budget to help pay for the stimulus program, according to the statement. Photographer: Kiyoshi Ota/Bloomberg
Around 3.8 trillion yen will be for disaster prevention and reconstruction, with 3.1 trillion yen directed to stimulating private investment and other measures, according to a statement released today by the Cabinet Office. Extra spending will increase gross domestic product by about 2 percentage points and create about 600,000 jobs, the government said.
A fiscal boost may help the newly-elected Abe maintain support for his Liberal Democratic Party before upper house elections in July after the yen slid through 89 per dollar today and as stocks extend a rally. The stimulus may heighten concern that the government’s commitment to fiscal reform is slipping, adding to the risk that a public debt more than twice the size of the economy may trigger a surge in bond yields.
“Abe will probably give the economy more shots in the arm and turn a blind eye to fiscal discipline until the elections,” saidHiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo. “There’s a risk that long-term bond yields will rise unless the government takes measures to restore fiscal health.”
The Bank of Japan (8301) is set to adopt the 2 percent inflation target advocated by Abe, doubling its existing goal of 1 percent, without setting a deadline for achieving it, according to people familiar with central bank officials’ discussions.
“This is going to be a big lift for Japan’s economy,” said Kohei Okazaki, an economist at Nomura Securities Co. in Tokyo, which this week raised its growth forecasts for Japan. “It will put more pressure on the central bank for easing because the government can push out its chest and say that it’s doing what it can.”
The yen was at 88.85 per dollar as of 11 a.m. in Tokyo after touching the weakest since June 2010. The Nikkei 225 Stock Average rose 1.2 percent, heading for its ninth week of gains.
The economic challenges facing the new prime minister were highlighted by data today showing a larger-than-expected current account deficit in November. Big manufacturers are the most pessimistic in almost three years, even as a sliding yen aids exporters from Toyota Motor Corp. to Panasonic Corp. (6752)
The government will compile a 13.1 trillion yen extra budget in the current fiscal year to help pay for its stimulus package. Some of the funding will be from selling about 5 trillion yen in bonds, the Cabinet Office said. Additional bond issuance for this fiscal year will be about 8 trillion yen including a previously announced plan to sell 2.6 trillion yen in so-called bridge bonds to cover pension payments.
Japan’s GDP shrank at an annualized 3.5 percent pace in the third quarter after contracting in the three months through June, meeting the textbook definition of a recession. The median estimate of economists surveyed by Bloomberg News is for a 0.6 percent contraction in the three months through December 2012, with growth in the three months to March seen at 1.6 percent.
The government said that most of the economic impact of today’s stimulus package will come in the fiscal year that starts in April.
The spending will include about 3.1 trillion yen for revitalizing local economies, medical services, child care and other measures, the government said. It will also consider new measures to stabilize the currency market using the special account in the nation’s foreign-exchange fund.
The total size of the economic measures will reach 20.2 trillion yen when local government and private sector contributions are taken into account, the government said. The job and GDP effects calculated by the government are based on this figure rather than 10.3 trillion yen.
Abe’s extra spending will help deliver real annualized GDP growth of 3.5 percent in the second quarter of this year, Nomura said in a report this week. The brokerage raised its GDP forecast for the fiscal year starting in April to 1.8 percent from 1 percent, citing the impact of the stimulus program and improved prospects for exports with the weaker yen and a recovery in the U.S.