Japan $29 billion stimulus seeks quick boost for regional economies: draft

December 25
9:01 AM 2014

Japan aims to give a quick boost to lagging regional economies and low-income households with subsidies, merchandise vouchers and other schemes in a $29 billion stimulus package aimed at rejuvenating a two-year reflationary effort, a draft of the plan showed.

The draft, seen by Reuters on Wednesday ahead of its official release, also urges the Bank of Japan to hit its 2 percent inflation goal as quickly as possible, and promises to do its utmost to halve Japan's primary budget deficit in the fiscal year starting next April, to curb a runaway public debt.

The package, worth around 3.5 trillion yen ($29.06 billion) and expected to be approved by Prime Minister Shinzo Abe's cabinet on Saturday, follows a massive victory by his ruling coalition in a general election earlier this month, giving him a fresh mandate to push through his "Abenomics" stimulus policies.

The stimulus will not require fresh debt issuance as the Finance Ministry will fund it with unspent money from previous budgets and tax revenues that have exceeded budget forecasts as the economy recovered, officials say.

The package centres on subsidies and payouts to local governments to carry out steps to stimulate household consumption and support small firms, as Abe focuses on regional economies ahead of nationwide local elections planned in April.

Eligible schemes could include distributing coupons to buy merchandise or fuel subsidies for low-income households. It will also seek to bolster the housing market by lowering the mortgage rates offered by a government home loan agency.

The draft says the economy is still in a moderate recovery trend but lingering areas of weakness persist, including consumer spending, which was hit hard by an April sales tax hike.

"This package is aimed at ensuring a virtuous economic cycle and spreading the benefits of Abenomics to all regions by swiftly focusing on fragile parts of the economy," it said.

The aggressive monetary and fiscal stimulus deployed under Abenomics has boosted stock prices and driven down the yen, producing windfall gains for big exporting companies and share investors.

But low-income groups, small firms and rural areas have been hit hard by rising import costs caused by a weak yen, and by a rise in living costs due to the sales tax hike.

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