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Japan launches £207b stimulus package

Japanese Prime Minister, Shinzo Abe, has approved a ¥28 trillion (£207 billion) stimulus package today, in the latest effort to fix Japan’s slow economy. The money will be spent on upgrading ports, welfare, to speed up the construction of a magnetic levitation line, and a number of other infrastructure projects.This is an attempt to fix public finances, after a disastrous decision to hike consumption tax to 8% just over two years ago in 2014, which plunged the economy into recession, and approval rate of Shinzo Abe was hurt.

Analysts at Rabobank said: “[Japanese] PM Abe is moving, with a strong parliamentary majority, to boost economic growth and inflation. In spite of the resounding lack of success thus far, the one major advantage that Japan has over the euro zone is in terms of its political landscape” [1].

The planned spending package will be one of Japan’s largest since the financial crisis. The Bank of Japan has been taking aggressive monetary policy actions that include a negative interest rate and large tranches of quantitative easing.

Yuichi Kodama, Chief Economist at Meiji Yasuda Life Insurance Co, said the package will provide some help to the economy, but warned that fiscal stimulus alone won’t create sustainable growth, and called for more structural changes—something many economists say Abenomics hasn’t delivered as promised [2].

The yen has strengthened against the US$ as a result of the stimulus package announcement.

[1] CNBC “Wall Street set to edge lower as Japan unveils fiscal stimulus” – CNBC.com

[2] WSJ “Japan Cabinet Approves $274 Billion Stimulus Package” – WSJ.COM