TOKYO • Japan yesterday announced a whopping stimulus package worth more than 28 trillion yen (S$361 billion) in its latest bid to fire up the lukewarm economy, with the central bank expected to unveil its own measures tomorrow.
Prime Minister Shinzo Abe confirmed the new stimulus plan but gave few details, except to say that about half the total would be fiscal measures including government spending. Cheap loans could also be part of the package.
More details are expected next week when the Cabinet meets to approve the measures.
The move is a response to Britain's vote last month to quit the European Union. The decision sparked a rally in the safe-haven Japanese currency that threatened profits at Japan and fanned fears about the already weak economy.
Policymakers face pressure to boost growth as the "Abenomics" plan of Mr Abe to kick-start the world's No. 3 economy comes under threat from poor data and sagging business confidence.
The yen fell yesterday for the first time this week after Mr Abe's announcement, weakening against all of its 31 major counterparts.
It weakened 0.9 per cent to 105.61 per US dollar in morning trade in New York, after depreciating as much as 1.8 per cent. It was trading at 77.87 yen to one Singdollar.
The yen's slide spurred broad gains for the greenback as investors waited for the Federal Reserve's latest assessment of the US economy at its meeting which ended early this morning.
Economists expect Bank of Japan governor Haruhiko Kuroda to ease policy at a meeting tomorrow.
Fiscal stimulus "is really what the market is looking to when they sell the yen", said senior currency strategist Aurelija Augulyte at Nordea Bank in Copenhagen. "The fact that the fiscal stimulus is being considered no matter the size - it still could be up to 4 per cent of gross domestic product - that's a massive blow to the yen."
Some economists have criticised the idea of a new spending package, saying the heavily indebted nation needs structural economic reforms and deregulation more than updated infrastructure.
"Abe is definitely putting pressure on the Bank of Japan," said Mr Daiju Aoki, an economist at UBS Group. "The announcement of the economic package will make it even more difficult for the BOJ not to act at this meeting."
Japan's economic recovery is at risk as a slowdown in overseas demand and the yen's surge this year are making the nation's products less attractive overseas and hurting the earnings of exporters.
Waning corporate profits may weigh on wage growth and household income, complicating the government's attempts to revive the economy.
Among the possible measures, the BOJ could expand its mammoth bond-buying plan, a cornerstone of Mr Abe's push to end years of deflation and kick-start growth. It might also cut interest rates further into negative territory in an attempt to boost lending to people and businesses. But this negative rate policy, launched in January, was criticised as a desperate move to prop up Mr Abe's failing growth plans.
Japan is also due to release monthly economic data tomorrow that could influence the central bank's decision. The last figures painted a worrying picture, with household spending falling and inflation dropping for a third straight month.
Japan dodged a recession in the first three months of the year.
AGENCE FRANCE-PRESSE, REUTERS