| |
TOKYO: Japan's government announced an economic stimulus package worth more than 100 billion dollars Friday to tackle the fastest inflation in a decade and the looming threat of a recession.
The plan includes measures to help consumers, companies and farmers cope with high fuel costs and a credit crunch.
With lending-related measures accounting for much of the 11.7-trillion-yen (107-billion-dollar) package, the boost to government spending is expected to be about 2.0 trillion yen. The government will also consider income tax cuts.
"This package is not a one-off," Economic and Fiscal Policy Minister Kaoru Yosano told a press conference. "It is aimed at continuously supporting the Japanese economy as well as people's lives."
The announcement came hours after official figures showed that Japan's core inflation rate surged to an annualised pace of 2.4 percent in July from 1.9 percent the previous month on the back of soaring energy and material costs.
Japan was stuck in a deflationary spiral for years, but the return of inflation has sparked concern as it is being driven entirely by rising import costs rather than a stronger domestic economy.
The fear is that rising prices will dampen already tepid consumer spending, which dropped 0.5 percent in July from a year earlier, down for a fifth straight month.
Inflation "is depressing consumer sentiment," said Lehman Brothers economist Hiroshi Shiraishi. "People still are used to deflation and now they're starting to see the prices of their daily necessities going up sharply."
The government has faced calls from some lawmakers within the ruling coalition for a bigger injection of public money into the economy, which shrank in the second quarter, raising fears of the first recession in six years.
But ministers have also stressed the need to rebuild the country's debt-ridden finances, saying they hope to avoid issuing new bonds to fund the stimulus package.
Prime Minister Yasuo Fukuda ordered the package as part of efforts to reverse a slump in his approval ratings with elections due by September 2009.
But experts doubted the package will have a significant impact on the overall economy.
"The package may be able to put out some of the sparks caused by rising prices but it is unlikely to extinguish the origins of the flame," said Katsuhiro Hachiya, an economist at the Japan Research Institute.
"What the Japanese economy needs are not makeshift measures but action to drastically change the economic structure so that Japan can survive the rapidly changing circumstances in the global economy."
The latest snapshots of the economy were not entirely gloomy.
The unemployment rate dipped to 4.0 percent in July from 4.1 percent the previous month, while industrial production unexpectedly edged up 0.9 percent.
Production is expected to fall by 2.9 percent in August but increase 3.4 percent in September, the government said based on a survey of manufacturers.
Until recently Japan's economy, the second largest in the world, had been recovering from a slump stretching back more than a decade.
A contraction in the second quarter of this year has left the country teetering on the brink of its first recession in six years, although most analysts expect the economy to avoid a deep or prolonged slump.
Japan's public debt is already the highest among industrialised nations after a series of emergency spending packages in the 1990s, leaving the government little room to boost spending without setting back fiscal reform efforts.
Fresh spending of up to two trillion yen "is insignificant", argued Richard Jerram, economist at Macquarie Securities.
"Signs that economic activity is proving fairly resilient, as well as growing hope that inflation is close to a peak, means there is little sense of desperation among policy makers," he added.
- AFP/yt
|
