Japan preparing ¥13 trillion stimulus package as recession risks rise

The government is preparing an economic stimulus package worth ¥13 trillion to support fragile economic growth, two government officials with direct knowledge of the matter said Tuesday, complicating government efforts to fix public finances.

The spending would be earmarked in a supplementary budget for this fiscal year and an annual budget for the coming fiscal year from April. Both budgets will be compiled later this month, the sources said, declining to be identified because the package has not been finalized.

While the package would come to around ¥13 trillion ($120 billion), that would rise to ¥25 trillion when private-sector and other spending are included.

However, the spending could strain the industrial world’s heaviest public debt burden, which is more than twice the size of the nation’s $5 trillion economy.

And despite the headline size of the stimulus, actual spending would be smaller in the current fiscal year, and economists are not expecting much of a boost.

“We expect this fiscal year’s extra budget to total around ¥3 to ¥4 trillion. We should not expect it to substantially push up the GDP growth rate,” said Takuya Hoshino, senior economist at Dai-ichi Life Research Institute.

The ¥13 trillion includes more than ¥3 trillion from fiscal investment and loan programs, as the heavily indebted government seeks to take advantage of low borrowing costs under the Bank of Japan’s negative interest rate policy. Local governments will be expected to shoulder more than ¥1.5 trillion

Direct government spending is expected to reach around ¥7 trillion to ¥8 trillion, they said.

Sources of funding the big spending remain unclear. A final decision on the package could be made as early as Thursday.

The previous policy package compiled in August 2016 totaled ¥28.1 trillion, including ¥6.2 trillion from the state.

Last month, Abe instructed ministers to formulate the economic package following disasters including Typhoon Hagibis, which ripped through wide areas of Japan in October, killing more than 90 people.

The government also plans to promote information and communications technology in education by supplying more computers to public schools to ensure each student in the fifth to ninth grades has access to a computer, according to the sources.

The stimulus is also aimed at alleviating the negative impact of the Oct. 1 consumption tax hike to 10 percent from 8 percent, as economic figures have signaled some damage.

The industry ministry data showed last week that the country’s retail sales in October tumbled at their fastest pace in more than 4½ years with a 7.1 percent fall from a year earlier. Demand for big ticket items such as cars and household appliances as well as clothing were weak, the trade ministry data showed last week. Department stores were hit particularly hard.

The drop was the biggest since a 9.7 percent fall in March 2015, and was worse than a 4.4 percent decline predicted by economists in a Reuters poll.

Other data disclosed last week from the industry ministry showed factory output fell 4.2 percent in October from the previous month, below the median market forecast for a 2.1 percent fall and swinging from a 1.7 percent rise the previous month.

Production was pushed down by a decrease in output of passenger cars and car engines, as well as general purpose and production machinery, the data showed.

The decline in autos production has raised concerns that the tax hike will have a more sustained impact on demand for cars and car parts.

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