Tokyo: Japanese Prime Minister Shinzo Abe`s cabinet approved a USD 182 billion package on Thursday to pull the economy out of deflation, but doubts remain about the impact.
The package has a headline value of 18.6 trillion yen, 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 which Abe ordered in October to bolster the economy ahead of a national sales-tax hike in April. 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.
There is a consensus that the sales tax hike will subtract about 2 trillion yen from gross domestic product, so 5.5 trillion yen in spending should more than compensate, Yasutoshi Nishimura, a senior vice minister at the Cabinet Office, told reporters.
Miyazaki was less optimistic, saying the measures may only contribute around 2 trillion yen or 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.
"This includes steps to boost capital expenditure for the future and ensure the economy stays in a positive cycle," Abe said in a speech about the stimulus to businessmen and economists.
"If companies invest more and wages rise more, then the positive (economic) cycle materializes."
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.
First Published: Thursday, December 5, 2013, 19:04