At Shinkansen speed? Japan’s govt readies $180 bn package to boost growth

It might have an enviable network of super-fast trains (called Shinkansen), but Japan’s economy is certainly not operating at anywhere near that speed.

Indeed, the Japanese economy hasn’t gone anywhere in the past 20 years.

Plucky Prime Minister Shinzo Abe and his ‘Abenomics’ are determined to change that.

So get ready, Japan. After a shock-and-awe spectacle from the Bank of Japan earlier this year, it’s the turn of the government (again) to make market observers go “wow”.

A Reuters report says that Prime Minister Shinzo Abe is putting the finishing touches on a $182 billion (18.6 trillion yen) stimulus package, which is expected to be unveiled sometime next week.

The package aims to lift the economy out of a deflationary malaise that has afflicted Japan since the early 1990s, and follows a government spending package of about $117 billion unveiled in January.

The new package will also try to ensure that consumers increase the pace of purchases before a new sales tax hike (from 5% to8%) hits them on April 1, 2014.

Of course, in Japan, the headline numbers don’t always tell the whole story.

In this case, the $182 billion includes several spending commitments that have already been made earlier. Actual new spending is about 5.4-5.6 trillion yen ($52-$55 billion), noted Reuters, quoting sources.

Interestingly, no new government debt will be issued to fund the package, which will, instead, use excess tax revenues generated and unspent funds from other accounts, the report adds.

The stimulus measures will include cash-handouts to low-income families and tax breaks for companies making capital investments, a Wall Street Journal report noted earlier.

Policy actions are being hurled at the usually moribund Japanese economy thick and fast in an attempt to revive it from its long-standing stupor.

Earlier this year, the central bank stunned financial markets by declaring that it would double the monetary base through mammoth asset purchases ($68 billion every month) to boost inflation to 2% in about two years.

Large-scale and bold monetary easing, flexible government spending and taxation and structural reforms are the three arrows of ‘Abenomics’.which is the most aggressive attempt in years to pull the country out of persistent stagnation.

It is an extremely bold economic experiment, and the fact that inflation is now at its highest in five years suggest that Abenomics is starting to yield results. The trick, as noted before, is to stay on course and not reverse policies prematurely, as previous governments — and central bankers — have done before.

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