Japan Brief/FPCJ, No. 0975
December 14, 2009


Government Announces Additional Stimulus Package Worth 7.2 Trillion Yen

The Japanese government announced on December 8 yet another additional stimulus package worth 7.2 trillion yen in fiscal money and the equivalent of 24.4 trillion yen in projects if measures that do not require direct government funding are added. The package is to be incorporated in a supplementary budget bill, the second in the current fiscal year, to be submitted to the Diet in January 2010.

The stimulus package turned out to be far larger than the 2.7 trillion yen initially planned by the government of Prime Minister Yukio Hatoyama, which hastily expanded the spending program in recognition of the dim prospects for the domestic economy. The government’s sense of urgency was exacerbated by deepening deflation and a surge of the yen to a 14-year high against the dollar in late November that sent the stock market tumbling in Tokyo. The government’s decision was made in tandem with the Bank of Japan’s implementation earlier in December of a measure to further ease money.

Called the “emergency economic measures for reassurance tomorrow and for growth,” the package stands on six pillars aimed at shoring up the economy and employment and preventing business from plunging into a feared second dip. The six priority sectors are employment, environment, business, security of livelihood, support for local areas, and the harnessing of “national potential,” which includes deregulation in certain sectors.

To cope with a possible rise in unemployment, the eligibility criteria for the “employment adjustment subsidy” granted to firms that retain redundant workers will be eased (with an appropriation of approximately 600 billion yen). The program in the environment sector features the extension of the “eco-point system” aimed at encouraging purchases of home electric appliances and of the tax reduction for eco-friendly cars, and the start of subsidies for homes equipped with energy-saving appliances (an appropriation of 800 billion yen). For helping money-squeezed small and medium-sized enterprises, about 1.7 trillion yen has been appropriated for loan guarantees and other schemes.

The 7.2 trillion yen package includes about 3 trillion yen in transfer of funds to local areas to make up for a decrease in local allocation taxes due to the drop in national tax revenue. As additional assistance, 500 billion yen has been appropriated for infrastructure improvement, such as bridge repairs, burying of electric cables underground, and urban greening.

The actual impact of the stimulus package is not considered strong enough. According to The Nikkei (December 9), which reported on the basis of interviews with six leading economists, the stimulus is expected at least to work to prevent joblessness from jumping and business from losing momentum. However, the package would not be strong enough to create jobs in significant numbers. The program, therefore, would add only a modest 0.3 percentage point to the nation’s real economic growth rate at the most. The Nikkei said there were some 2 million workers who were virtually redundant but were kept on the payroll by companies thanks to the government subsidy.

A major concern emerging from the additional spending program is a marked deterioration of public finances. On December 8 Minister of Finance Hirohisa Fujii indicated that government bond issues for the current fiscal year would shoot up to 53.5 trillion yen from the initially planned 33.3 trillion yen, the highest on record, and that the outstanding balance of central government bond issues at the end of the fiscal year (March 31, 2010) would top 600 trillion yen for the first time. With prospective tax revenues dwindling to 36.9 trillion yen, the income from bond issues is set to exceed tax revenues for the first time since 1946. “The public finances are in an extremely grave state,” Fujii told a press conference following a cabinet meeting on December 8.

Major Newspaper Editorials on December 9

The Yomiuri Shimbun was most blatantly skeptical about the effect of the new stimulus package. Its editorial said, “The economic pump-priming measures agreed upon by the government and cabinet on Tuesday seem sizable if judged only on the basis of the amounts involved, but whether we can expect economic effects equivalent to the measures’ face value remains an open question.”

The Asahi Shimbun disapproved of “stopgap programs.” In its editorial, the newspaper said, “It is not enough for the administration to offer stopgap measures. Although what it has put together is only a supplementary budget bill, the administration should have included some sort of growth strategy that will nurture new industries and create jobs, so as to ensure a smooth transition into the fiscal 2010 budget.”

The Nikkei also called for linking the emergency package to a forceful growth strategy. Noting that “the Japanese economy runs the risk of sinking into a second dip during the first half of 2010 when the impact of emergency measures will lose steam,” the newspaper gave credit to the package “for enlisting measures to promote longer-term growth, deregulation among other things.” It went on to say that “the government of the Democratic Party of Japan deserves praise for starting to emphasize a growth strategy.”

The Sankei Shimbun said it wanted to see “wise investment” in the emergency measures. “In the midst of severe fiscal reality, we cannot afford handouts of public works projects,” it argued. “Like the improvement of Tokyo’s Haneda Airport, resources need to be concentrated in ‘wise investment’ that will help promote future economic growth and strengthen Japan’s competitiveness.”

“Don’t ever forget the fiscal crisis, either,” claimed the Mainichi Shimbun in a characteristic argument on the fiscal situation. The newspaper opened its editorial with the question “What is this package for in the first place?” and went on, “The Japanese economy is in an ‘emergency.’ It is a fiscal emergency that is requiring 53.5 trillion yen in bond issues for this fiscal year, the worst ever. Bond issues, it is said, will exceed tax revenues for the first time since immediately after the end of World War II. But it is even worse than that. It means borrowing will be nearly 1.5 times larger than tax revenue.” The Mainichi warned, “We are concerned that fiscal discipline will only continue to loosen in the future.”

(Copyright 2009 Foreign Press Center, Japan)

*Japan Brief is an original production of the Foreign Press Center, Japan, and does not represent the views of the Government of Japan or of any other body.


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