Japan leans on fiscal stimulus to keep recession at bay

Japan’s Prime Minister Shinzo Abe announced stimulus measures to support growth in an economy contending with an export slump, natural disasters and the fallout from a recent sales tax increase.

The total stimulus package amounts to around 26 trillion yen ($239 billion) spread over the coming years, with fiscal measures around half that figure, according to a draft. The stimulus will boost real growth by about 1.4 percentage point, the draft said.

The extra spending comes amid a rising awareness around the world that more government help is needed to keep economies growing in the face of a global slowdown that is exposing the limits of relying on central banks do the heavy lifting of economic management.

Abe described the stimulus as a three-pillared package designed to aid disaster relief, protect against downside economic risks and prepare the country for longer-term growth after the 2020 Tokyo Olympics. He said the stimulus would be funded by a supplementary budget for the current fiscal year ending in March, and special measures in the following year. The draft indicated that finding for the measures in the extra budget would be around 4.3 trillion yen.

While the package was slightly larger than expected, the single-digit size of fresh spending measures left markets largely unimpressed.