Japan prepares $120bn package to bolster economy

Japan is preparing an economic stimulus package worth $120 billion to support fragile growth, complicating government efforts to fix public finances.

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

The package would come to about 13 trillion yen ($120 billion), but that would rise to 25 trillion yen ($230 billion) when privatesector and other spending is included.

The Nikkei business daily reported on the weekend that the government was considering putting together a large-scale stimulus package with fiscal spending exceeding $92 billion.

Japan’s economic growth slumped to its weakest in a year in the third quarter as soft global

HIGHLIGHTS

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Govt to craft extra budget to fund part of spending.

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Spending to spread over fiscal year 2020.

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Stimulus complicates efforts to curb public debt.

demand and the Sino-US trade war hit exports, stoking fears of a recession. Some analysts also worry that a sales tax hike to 10 percent in October could cool private consumption which has helped cushion weak exports.

Such spending could strain Japan’s coffers — the industrial world’s heaviest public debt burden, which tops more than twice the size of its $5 trillion economy. 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 3-4 trillion yen. 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 yen includes more than 3 trillion yen 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.

Direct government spending is expected to reach about 7-8 trillion yen, they said.