Japan approves over $275b in fresh economic stimulus

TOKYO (AP) - The Japanese Cabinet has approved a fresh stimulus spending of more than 20 trillion yen (S$275 billion), rushing to fulfill campaign pledges to break the world's third-biggest economy out of its deflationary slump.

Prime Minister Shinzo Abe announced the decision on Friday at a news conference where he said the new measures were intended to add 2 per cent to Japan's economic growth and contribute 600,000 new jobs.

Mr Abe urged the central bank to move more aggressively to encourage lending and meet a clear inflation target.

He took office late last month after a parliamentary election victory by the Liberal Democratic Party (LDP), which is touting public works spending and subsidies to strategically important sectors as part of its plan to pull the economy out of recession.

Mr Abe, who also served as prime minister in 2006-2007, has vowed to make reviving the economy his top priority, promising support both to small businesses and big industries such as the auto sector.  

The stimulus deal required wrangling over tax reform and other issues with the Liberal Democrat’s coalition partner, the New Komeito.  Mr Abe and his ministers also sought support for his programme from big business in a whirlwind round of appearances at new year parties this week.   “We will work with you and appreciate your cooperation,” Industry Minister Toshimitsu Motegi told a gathering of Japanese auto executives, describing the car industry as the “main hitter” of the Japanese economy.   “Without a revival of the auto industry there will be no rebirth of Japan,” he declared.  

The bulk of the spending package will go to supporting industrial revitalisation and reconstruction from Japan’s March 2011 earthquake and tsunami disasters. It also includes plans to raise military spending by 100 billion yen  from the 4.6 trillion yen budget last year, the first such increase in a decade.   The increase is partly aimed at beefing up monitoring and defences around islands in the East China Sea, known as the Senkakus in Japan and the Diaoyu islands in China, that are the focus of a simmering territorial dispute.  

The interim budget request made in September under the previous government of Democratic Party of Japan called for keeping the 2013 defence budget flat.  Earlier this week, Defence Minister Itsunori Onodera acknowledged the size of the budget request increase and added that the rise would be aimed at stepping up defence against threats from Japan’s “neighbouring countries”. 

“Many people are concerned about tensions recently with neighbouring countries, or North Korea’s missile development. I believe people want us to firmly tackle those issues and protect our territorial land, seas and air, and we are preparing a budget  that can quickly address those concerns,” Mr Onodera said.  

Mr Abe has urged Japan’s central bank to do whatever it takes to meet an inflation target of 2 per cent to counter a persisting cycle of sinking prices and weak demand.   The spending package is due to form the basis of a supplementary budget for the remainder of the fiscal year, which ends on March 31. Mr Abe has said he plans to draft a budget for the next fiscal year by the month’s end.  The spending package includes 10.3 trillion yen in extra outlays by the central government. Mr Abe’s administration is pledging to spend 19 trillion yen through 2015 in support for reconstruction of the coastal areas  devastated by the March 2011 disasters.     

The change of administration has raised hopes that Mr Abe's more aggressive approach might help Japan escape recession.