Abe administration calls for fiscal boost for economy

Tokyo

JAPAN'S government called on Tuesday for decisive fiscal action combined with powerful central bank easing to ensure the economy can overcome risks threatening growth and recover from natural disasters.

A draft of a government stimulus package obtained by Bloomberg sets out the need for spending on upgrading disaster-prevention infrastructure, an extension of a cashless rebate programme and information technology help for small and mid-sized companies that are raising wages.

The draft did not set out how much money would be spent on the measures, but a senior Abe administration official said the stimulus would easily top 10 trillion yen (S$126 billion).

Liberal Democratic Party policy chief Fumio Kishida said after a party meeting: "The feeling I got was that the economic measures would go far beyond 10 trillion yen in scale, and that overall working size would be about 25 trillion yen."

The effective punching power of the stimulus package won't be clear until specific figures are given for actual spending and the size of an extra budget to fund it.

Overall figures for spending packages typically include loans and assistance from the private sector.

A package in August 2016 had a headline size of 28.1 trillion yen, but the extra budgets financing it that year amounted to only 3.5 trillion yen, an amount that the latest package is expected to exceed.

With his first major stimulus package since 2016, Mr Abe seems intent on maintaining his economic legacy as Japan's longest serving prime minister.

While Japan's labour market is close to its strongest in almost three decades and domestic demand has kept the economy expanding despite the global slowdown, the economy still faces risks from US-China trade tensions and October's sales tax hike.

A typhoon and bad weather in October have also made it hard to discern the economy's underlying strength. Economists have long forecast a contraction in the last three months of this year as the sales tax increase hits domestic consumption.

Retail sales dropped the most on record in October and production fell twice the amount analysts expected, leading to renewed concern that the impact from the tax might be larger than hoped. Some economists see a chance of gross domestic product shrinking by more than a market consensus of -2.7 per cent this quarter, the biggest contraction since 2014.

Still, positive capital spending figures released at the week's start suggest companies are continuing to invest despite economic headwinds, offering policy makers some justification for a diluted spending package.

The stimulus package calls for spending to take place alongside continued Bank of Japan easing, essentially enabling the central bank to sit tight without adding to its own measures. BLOOMBERG