[TOKYO] Japanese Prime Minister Shinzo Abe's cabinet is set to approve on Tuesday 13.5 trillion yen (S$177.4 billion) in fiscal steps as part of efforts to revive the flagging economy with cash payouts to low-income earners and infrastructure spending.
The package is expected to include 7.5 trillion yen in spending by the national and local governments, and earmarks 6 trillion yen from the Fiscal Investment and Loan Programme, which is not included in the government's general budget.
"We compiled today a strong economic package draft aimed at carrying out investment for the future. With this package, we'll proceed to not just stimulate demand but also achieve sustainable economic growth led by private demand," Mr Abe told a meeting of cabinet ministers and ruling party executives on Tuesday morning.
The headline figure for the package - which includes public-private partnerships and other amounts that are not direct government outlays and thus may not give an immediate boost to growth - is expected to come to 28.1 trillion yen.
Mr Abe ordered his government last month to craft a stimulus plan to revive an economy dogged by weak consumption, despite three years of his "Abenomics" mix of extremely accommodative monetary policy, flexible spending and structural reform promises.
The package comes days after the Bank of Japan eased policy again and announced a plan to review its monetary stimulus programme in September, which has kept alive expectations for "helicopter money", printing money for government debt.
The expected appointment of Toshihiro Nikai, an advocate of big public works spending, to the No. 2 post of Mr Abe's ruling party in tandem with a cabinet reshuffle on Wednesday, underscores Mr Abe's shift toward his "second arrow" of fiscal policy amid concerns monetary easing is reaching its limits.
Precisely how the spending will be financed is unclear, although the government is considering issuing construction bonds. The stress on fiscal steps is raising doubts about Japan's ability to fix massive debt.
SMBC Nikko Securities' analysts expect the economic package will push up real GDP growth by just 0.4 percentage point this fiscal year to March 2017 and 0.04 percentage point next year.
"As effects of public works and cash payouts fade later in fiscal 2017, Japan will likely face a fiscal cliff," said Koya Miyamae, senior economist at SMBC Nikko Securities, referring to the contraction in spending after the package wears off.
"To prevent a fiscal cliff, the government will likely repeat large-scale stimulus. Considering that a general election must be held by late 2018, direct government spending would become larger, which could further delay Japan's fiscal consolidation goal."