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Japan Announces New Fiscal Stimulus Plan

by Mary Swire,, Hong Kong

10 December 2009

Debt-ridden Japan has announced a JPY7.2 trillion (USD81bn) stimulus package in a desperate attempt to stave off further economic deterioration.

In a statement, Finance Minister Hirohisa Fujii admitted that the national debt is in “an extremely serious state” and is expected to exceed a full year’s revenue for the first time since World War II.

The main part of the stimulus comes in the form of JPY3.5 trillion in loans to municipal authorities to be used to stimulate local economies. According to the government this will be returned in the coming years through a reduction in municipalities’ share of tax revenues. A further JPY600bn is to be invested in job creation, and another JPY800bn has been allocated to environmental initiatives.

Fujii has again downsized revenue projections, slashing JPY9 trillion off the JPY46 trillion initially forecast. He explained that an April bond issue of JPY53.5 trillion will finance the budget deficit in the coming year. Japan will also tap into funds saved through retrenchment in government-funded projects.

The stimulus package comes alongside a JPY10 trillion injection by the central bank last week, aimed at providing the financial system with low-interest loans in an effort to encourage lending to viable businesses.

Growth continues to weaken in Japan, dropping to 1.3% of GDP in Q3 against earlier projections of 5%.

The announcement contained little in the way of new tax measures, although the government has confirmed that it intends to put in place measures promised earlier in the year, including "direct support" for household finances via a child allowance, abolishing the provisional rates of tax on petrol, tax breaks for people buying homes with cash, and a cut in corporate tax for small companies.

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