Quantcast
Japan government plans direct spending of about 7 trillion yen in stimulus package: sources – Metro US

Japan government plans direct spending of about 7 trillion yen in stimulus package: sources

Japan government plans direct spending of about 7 trillion yen in stimulus
By Takaya Yamaguchi

By Takaya Yamaguchi

TOKYO (Reuters) – The Japanese government is planning direct fiscal spending of around 7 trillion yen ($67 billion) to help fund an economic stimulus package totaling more than 28 trillion yen, two people briefed on the matter told Reuters on Thursday.

That amount – at just a quarter of the total package – could disappoint some market players bracing for bigger outlays given the massive headline figure, equal to more than 5 percent of gross domestic product.

The total package, to be approved by Prime Minister Shinzo Abe’s cabinet next Tuesday, also includes 6 trillion yen for a fiscal loan and investment program aimed at spurring private-sector spending such as for construction of a “maglev” train line, the sources said. They spoke on condition of anonymity because the plan has not been finalised.

The remaining 15 trillion yen will come from quasi-government financial institutions that provide loans, loan guarantees and subsidies to private-sector firms, they said.

“The actual impact on economic growth is bound to be smaller, with the kick from extra spending likely to be weaker and spread out over several years,” Frederic Neumann, Co-head of Asian Economics Research at HSBC, said in his report.

“At the margin, of course, the surprise fiscal announcement will put a bit of extra pressure on the Bank of Japan to deliver tomorrow.”

Political pressure on the BOJ to expand stimulus this week is intensifying with the economy minister calling on the bank to work with the government to boost growth, in the wake of premier’s announcement of a bigger-than-expected fiscal spending package.

Many BOJ policymakers prefer to hold off on easing on Friday, worried about the rising costs and diminishing returns of an already massive asset-buying program that is drying up bond market liquidity.[nL4N1AE1A4 ]

Following a big election victory this month, Abe instructed his government to craft a stimulus to revive an economy dogged by weak consumption and investment despite three years of his “Abenomics” mix of hyper-easy monetary policy, spending and promised reforms.

The premier’s government is inflating the size of the economic package from initially floated around at least 20 trillion yen.

A spokesperson for the prime minister’s office would not comment when asked about the size of direct spending in the stimulus. He repeated Abe’s comments on Wednesday that the stimulus package will be more than 28 trillion yen and that 13 trillion yen of this will be “fiscal measures”.

(Writing by Tetsushi Kajimoto and Kaori Kaneko; Editing by Chang-Ran Kim and Sam Holmes)