Japan passes $176 billion stimulus budget to tackle deflation

TOKYO (AFP) - Japan's parliament on Tuesday passed a US$142 billion (S$176 billion) extra budget that forms a key part of Prime Minister Shinzo Abe's efforts to tackle the deflation that has dogged the economy for years.

The 13.1 trillion yen (US$142 billion) package squeaked by the opposition-controlled upper house of parliament less than two weeks after the lower house approved the spending.

The measure is part of a wider stimulus package announced by Mr Abe's cabinet in January, after his Liberal Democratic Party swept to victory in December elections on a pledge to revive the world's third-largest economy.

The new money will be earmarked for various economy-boosting measures, including job growth, upgrading Japan's ageing infrastructure, and rebuilding disaster-struck areas hit by the 2011 quake-tsunami.

Plugging a public-pension financing gap was among the other spending measures.

The total package could top 20 trillion yen if spending by local governments and the private sector was included.

Japan's economy shrank for a third straight quarter between October and December, leaving it mired in recession largely due to weak export demand, and stirring fears about its ability to cement a recovery.

Mr Abe has pledged to pull Japan out of years of falling prices, which dampen demand and business investment, through big spending and aggressive monetary easing.

He has pressured the Bank of Japan for such policy measures, with a new central bank chief set to be nominated as early as this week.

The hawkish prime minister has also said he would boost defence spending.

Japan is embroiled in territorial disputes with China and South Korea, while an unpredictable North Korea jangled regional nerves earlier this month with its third nuclear test.

But the big spending plans have stoked fears over Japan's already tattered fiscal health, the worst among industrialised nations, with public debt standing at more than twice the size of the economy.