The government of Japan has approved a new stimulus package adding up to 10.3 trillion yen ($116bn), in a renewed attempt to kickstart its economy.
Tokyo has estimated that the new measures, which include infrastructure spending and business incentives to boost investment, will create 600,000 new jobs and add 2% to the country’s economy. The continuing work to rebuild areas damaged by the earthquake and tsunami of 2011 will form the largest part of infrastructure spending.
A combination of reduced export levels and flagging domestic consumption have hit the Japanese econoy hard. The country is now officially in recession, having seen its economy contract for two quarters in a row.
“Unfortunately, the previous administration failed to work out how to boost growth and expand the economic pie,” said recently elected Prime Minister Shinzo Abe.
“It is vital that we have an economic strategy that can create jobs and raise incomes to sustain growth.”
Japanese shares rose following the stimulus announcement, with the Nikkei 225 index gaining 1.4%. Despite the warm reception from the international money markets, some analysts have already pointed out that such stimulus measures are only a short-term solution:
“So far what we have seen is measures to kick-start the economy,” the Fujitsu Research Institute’s Martin Schulz told the BBC.
“But once the stimulus boost is over, the coffers will be empty again and Japan will have no more money to spend.”
Prime Minister Abe has already made it clear that his longer term plan to revive the Japanese economy will center on devaluing the Yen. A weaker Yen would provide a much needed boost to Japan’s exports. It could also help to end deflation, which has hit domestic spending as consumers hold off on big purchases in the hope of getting a better deal in the future. The Yen has already weakened by almost 12% against the US dollar since last November, primarily due to market hopes that Mr Abe will make good on his promises.