In response to a recent economic downturn, the Japanese government has proposed a stimulus package to try to boost the country’s economy.
A slowdown in demand from China amid the US-China trade war has curtailed Japan’s economic growth more than economists had predicted. On top of that, a dispute with South Korea has seen sales of beer and other products from Japan take a big hit.
The proposed package is the first fiscal stimulus since 2016 and amounts to approximately 1.9 per cent of Japan’s gross domestic product over 15 months.
Where will the funds come from?
The public portion of the package will be financed by government bonds and the country’s general accounts with ¥9.4 trillion taking the form of government spending. The central government will put up ¥7.6 and the remainder will come from prefectures and municipalities. The other ¥3.3 trillion will take the form of loans to public bodies using the government’s ultra-low interest rate.
The government expects the package to raise private sector spending by up to an additional ¥13 trillion. Two months ago, the government introduced a new consumption tax in an attempt to shore up the country’s finances only to see retail sales slump.
Japan’s debt is currently two and a half times its total annual output.
Proposed plans for the stimulus package
The main aims of the stimulus package are recovery, reconstruction and security from natural disasters.
Last October, when Typhoon Hagibis hit Japan, it highlighted the country’s need to invest in new and safer infrastructure. An allocation of ¥7 trillion has been suggested for disaster restoration, the spending of which includes reinforcing riverbanks to prevent future flooding, and the creation of improved hazard maps.
To address the downside risk to the economy, ¥7.3 trillion will be allocated, with a further ¥11.7 trillion aimed at preventing a sharp reduction in public works spending following the Tokyo Olympics.
The package will include measures to help expand farm and marine product exports, as a bilateral trade agreement with Washington is set to come into effect next year.
Plans will also be put in place to help people in their 30s and 40s find jobs by increasing job training services for those affected by the deflation-hit economy of the 1990s. It also aims to improve labour conditions, support small companies and promote advanced technological developments such as mobile communication technology beyond 5G.
Growth may not be easily attained
Japan is currently the world’s third largest economy; however, this stimulus package is an admission that the Japanese economy is still vulnerable even after years of growth. Japan’s debt is currently two and a half times the total annual output and the planned spending will push it higher.
The country has also had trouble spending stimulus packages in the past as labour shortages make it difficult to get public works up and running.
Japan faces further uncertainty over the impact of Brexit and instability in the Middle East so it’s difficult to predict whether or not the proposed stimulus will be enough to prevent further economic decline.
What are your thoughts on Prime Minister Abe’s stimulus package? Let us know what you think in the comments below.
"Otsumami" - a bite size snack:
Sometimes government intervention is required to protect the economy – hopefully this stimulus package is enough to curb the downturn.