Abe planning fiscal stimulus measures worth $125 billion

Japanese PM earlier warned G-7 leaders of looming global economic crisis: Report

TOKYO • Japanese Prime Minister Shinzo Abe is planning to propose a fiscal stimulus package of as much as 10 trillion yen (S$125 billion) after warning Group of Seven leaders that the global economy faces significant risk of another crisis, according to the Nikkei newspaper.

Mr Abe will seek a second supplementary Budget worth 5 trillion yen to 10 trillion yen after July's Upper House election, the Nikkei reported on Saturday.

Proposals will include accelerating the construction of a magnetic levitation train line from Nagoya to Osaka, issuing vouchers to boost consumer spending, increasing pay for childcare workers, and setting up a scholarship fund, the Nikkei said.

"When you want to get the economy going, as long as demand in Asia is weak, you need additional public spending," Mr Martin Schulz, a senior economist at Fujitsu Research Institute in Tokyo, said by phone.

"Since private spending is still not picking up, the government is simply taking up the slack," he added.

GOVERNMENT TO THE RESCUE

When you want to get the economy going, as long as demand in Asia is weak, you need additional public spending. Since private spending is still not picking up, the government is simply taking up the slack.

MR MARTIN SCHULZ, a senior economist at Fujitsu Research Institute in Tokyo, on Mr Abe's planned fiscal stimulus package.

Mr Abe is getting closer to delaying an increase in Japan's sales tax. On Friday last week, he said he will make a decision before an Upper House election this summer, on whether to go ahead with a planned hike in the levy in April next year, to 10 per cent, from 8 per cent. A formal announcement of a two-year delay is expected on Wednesday at the close of the parliamentary session, the Nikkei reported.

This would be the second postponement by Mr Abe, as the tax was initially scheduled to be raised in October last year. An increase in the levy in 2014 pushed Japan into a recession.

Mr Abe had previously said the tax hike would be delayed only if there was a shock on the scale of a major earthquake or a corporate collapse like that of Lehman Brothers Holdings.

Since the previous tax hike, the economy has swung between contraction and growth, with consumer spending remaining weak.

Bank of Japan governor Haruhiko Kuroda has struggled to spur inflation despite record asset purchases and negative interest rates. Consumer prices, excluding fresh food, fell 0.3 per cent last month from a year earlier, after dropping by the same amount in March, data released on Friday showed.

Meanwhile, the yen has surged about 9 per cent against the dollar this year, threatening profits for exporters, including Toyota Motor, and weighing on the nation's stock market. The benchmark Topix index has fallen 13 per cent this year.

The stimulus package would be the second one this fiscal year after Japan approved a 778 billion yen supplementary Budget this month to aid recovery from earthquakes in the Kumamoto region.

BLOOMBERG

A version of this article appeared in the print edition of The Sunday Times on May 29, 2016, with the headline 'Abe planning fiscal stimulus measures worth $125 billion'. Print Edition | Subscribe