Japan unveils stimulus as recovery weakens

Hatoyama's first stimulus plan includes 3.5 trillion yen to help regions, 600 billion yen for employment and 800 billion yen on environmental initiatives, the Cabinet said Tuesday in a statement in Tokyo. The measures had been delayed because of haggling within the coalition government.

The package came a week after the Bank of Japan released a 10 trillion yen credit program in response to government calls for it to counter deflation and a surging yen. Analysts said Tuesday's measures may provide at least a temporary boost for the world's second-largest economy, which emerged from its worst postwar recession in the second quarter.

“I give it 50 points out of 100,” said Masaaki Kanno, chief economist in Tokyo at JPMorgan Securities Japan Co. and a former central bank official. The package “will be effective in easing strains on an economy struggling with deflation and a lack of demand, but it won't boost growth potential in the medium to long term.”

The yen has weakened since climbing to a 14-year high of 84.83 against the dollar on Nov. 27. The Japanese currency traded at 88.83 at 2:20 p.m. in Tokyo from 88.99 before the announcement. The Nikkei 225 Stock Average fell 0.5 percent, heading for its first decline in more than a week.

“Risk factors include a deterioration in employment conditions, sluggish demand because of deflationary pressure, a rise in long-term interest rates and movements in the currency markets,” the statement said. Abrupt foreign- exchange moves may have a “considerable adverse impact on the economic recovery.”

Japanese policy makers are adding stimulus measures just their counterparts around the world consider withdrawing them. Deputy Prime Minister Naoto Kan said Tuesday that the central bank's Dec. 1 credit easing had a “considerable impact” on weakening the yen.

Japan has compiled four stimulus plans since September 2008 totaling more than 29 trillion yen (US$326 billion). That compares with the U.S.'s US$787 billion and China's US$586 billion.

The People's New Party, a junior coalition member headed by Financial Services Minister Shizuka Kamei, blocked the stimulus last week, calling for a larger package to defeat deflation. Coalition parties agreed to boost the size of the measures by 100 billion yen to accommodate the request.

Tuesday's package includes 3 trillion yen in tax grants to local governments to make up for a revenue shortfall. The government will pay for the tax breaks by selling deficit-covering bonds.

Some 1.2 trillion yen will be used to expand emergency credit for small- and mid-sized businesses, provide safety-net loans and reduce interest rates on lending.

The package extends a program initiated by the previous administration giving consumers incentives to purchase eco-friendly cars and home appliances. It also introduced incentives to install energy-saving equipment in homes.

The employment measures will make it easier for companies to obtain subsidies to keep workers when cutting production.

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