Japan set to give details of 28t yen stimulus package

[TOKYO] Japan's government is set to announce details Tuesday of a 28 trillion yen (S$367.3 billion) stimulus package, as it seeks to bolster an economy threatened by a strengthening yen and weak consumer spending.

Prime Minister Shinzo Abe flagged the size of the package in a speech last week, saying more investment was needed to expand the world's third-largest economy.

He said funds would be used to provide better port facilities for cruise ships and accelerate the construction of a high-speed maglev train line.

Actual spending will only make up about 7 trillion yen, according to a person familiar with the matter, with the rest consisting of loans and other financing, probably spread over several years.

The package is the latest in a long series that have had limited impact on the economy, while Mr Abe's promise to make structural reforms - tackling areas like immigration and employment regulation - has fallen short of expectations.

The cabinet's expected approval of the package comes as exporters grapple with the yen's rise, Britain's vote to leave the European Union and a slowdown in emerging economies. At the same time, concern is growing that the Bank of Japan is running out of options for further easing, after it made only minor policy adjustments at a meeting last week.

"The fiscal spending will probably include public works spending, so we can expect something of an economic boost," said Masaki Kuwahara, an economist at Nomura Securities Co in Tokyo. But such growth may not be sustainable.

"What Japan needs to do is to spur more demand and increase productivity by pushing through deregulation, increasing the nation's potential growth rate." Mr Abe is seeking to expand the economy by 20 per cent by 2020. To do so, he's pledged measures to bolster household incomes, increase the birth rate and provide more care facilities for children and the elderly.

After announcing in June he would put off an increase in the sales tax, he promised last week to tap reserves in the unemployment insurance fund to lower premiums and increase payouts.

Natsuo Yamaguchi, leader of Mr Abe's junior coalition partner Komeito, told reporters on Tuesday after a meeting with Mr Abe that the budget measures in the package would amount to 13.5 trillion yen and the stimulus would boost gross domestic product by about 1.3 per cent.

NHK reported last week the package - the second to be compiled in the current fiscal year - would include cash handouts of 15,000 yen for those on low incomes, with 10.7 trillion yen set aside for infrastructure spending and 10.9 trillion yen to help smaller companies weather the impact of Brexit.

Exporters have suffered as the yen soared over the past six months from more than 120 yen to the dollar to about 103. Panasonic Corp last week partly blamed the strong yen for a fall in quarterly profit. Household spending has dropped in 10 of the past 12 months.

The package comes the day before a minor cabinet reshuffle in which most senior ministers are expected to keep their posts.

Economy Minister Nobuteru Ishiharawill stay on, NHK reported, after speculation he might be replaced following the defeat of Mr Abe's candidate in the weekend election for Tokyo governor. Finance Minister Taro Aso and Chief Cabinet Secretary Yoshihide Suga will keep their jobs, according to local media.

BLOOMBERG