Japan outlines new stimulus move

Japan outlines new stimulus move
By Michiyo Nakamoto in Tokyo
Copyright The Financial Times Limited 2009
Published: March 31 2009 10:36 | Last updated: March 31 2009 10:36
http://www.ft.com/cms/s/0/64362f08-1dd6-11de-830b-00144feabdc0.html


Taro Aso on Tuesday instructed his ministers to compile a new economic stimulus package “as soon as possible before mid-April” in addition to a longer-term programme for growth.

“The Japanese economy is still in a critical situation,” Mr Aso said.

“I would like to make utmost efforts (to stimulate the economy) based on bold thinking,” he said.

The new stimulus package, which came just ahead of Mr Aso’s departure to join world leaders at the G20 summit in London on Wednesday, will have three main priorities: to ensure that the Japanese economy does not deteriorate further, to maintain jobs and boost Japan’s future growth potential, Mr Aso said.

The additional stimulus package comes as government figures showed unemployment rose to a three-year high of 4.4 per cent and the number of new jobs created sank to a 6-year low. Meanwhile, household spending fell 3.5 per cent year-on-year, a 12th consecutive monthly decline.

Japan’s Financial Services Agency is to inspect banks and credit associations to ensure they are extending loans to keep liquidity flowing to companies in need, Reuters reported on Tuesday.

Japan has already committed Y12,000bn in fiscal spending to revive the ailing economy and Mr Aso said the execution of those measures would be frontloaded as much as possible.

The prime minister failed to indicate how much more spending the new measures would entail, saying only that the cost of the package would depend on the details.

With the new package, Japan’s fiscal spending to combat the adverse effects of the global crisis, is likely to comfortably exceed the 2 per cent of GDP recommended by the IMF.

The new economic stimulus measures come as the Organisation for Economic Cooperation and Development warned that “the unemployment rate is likely to rise above 5.5 per cent and deflation may become entrenched.”

The OECD urged the Bank of Japan to keep the benchmark interest rate near zero and increase liquidity and recommended the Japanese government reform the tax system to promote growth.

The Nikkei stock average closed moderately lower amid concerns about the future outlook following nervousness in the US market over the fate of the car and banking industries.

Meanwhile, the ruling Liberal Democratic Party yesterday decided to submit legislation that would allow the use of public funds to buy exchange traded funds and real estate investment trusts, in a desperate bid to bolster Japan’s sagging markets.

Mr Aso said further that the government was considering measures to channel Japan’s Y1,400,000bn in household financial assets, much of which is held by the elderly, towards consumption.

The government is also working on a long-term growth programme that would bring the public and private sectors together to create new jobs and stimulate demand, Mr Aso said.

The programme will aim to stimulate growth by channelling Japan’s strength in environmental technology, animation, fashion and popular music to revenue-generating businesses.

Japan will also use its financial resources, including overseas development aid, to stimulate growth in Asia, Mr Aso said.

“It is important to look beyond Japan’s borders and think about Asian growth as a whole,” he said.

“I would like Japan to use its technology to lead a low-carbon revolution,” Mr Aso said.