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Shinzo Abe has put Japan at the forefront of a global shift away from austerity and back towards looser fiscal policy as he launched a new ¥4.6tn ($45bn) stimulus to boost a struggling Japanese economy.
Although Mr Abe proclaimed a total package of ¥28.1tn, the actual new government spending is ¥6.2tn, of which ¥4.6tn — 0.9 per cent of gross domestic product — will fall in the current fiscal year.
The package marks a return to the basics of the prime minister’s Abenomics programme, which was supposed to combine monetary and fiscal stimulus, as Japan wrestles with weak consumption and the drag on exports from a stronger yen.
“The key word is investment in the future,” said Mr Abe as he announced the decision in cabinet. He exhorted ministries to put the package into effect as fast as possible.
At the heart of the package are measures to help low-income pensioners and bringing forward the completion of a maglev train line from Tokyo to Osaka by eight years using soft government loans.
“There was no surprise at all,” said Daiju Aoki, an economist at UBS in Tokyo. “Last year we had ¥3.3tn and this year it will be ¥4.6tn,” he said, arguing that the additional impetus to growth might be as little as 0.1 or 0.2 per cent of GDP.
The package includes ¥2.5tn in welfare spending, ¥1.7tn for infrastructure, ¥0.6tn for small and medium-sized businesses hit by “uncertainty due to Brexit”, and ¥2.7tn for reconstruction after an earthquake on the southern island of Kyushu earlier this year.
Few precise details are available — the package contains a laundry list of measures for ministries to spell out later — but the welfare spending is expected to include childcare subsidies and a payment of ¥15,000 ($147) each for 22m low-income individuals.
Direct spending on families and low-income households should find its way into consumption quickly. Some of the infrastructure spending may not take effect for years.
The stimulus comes after the Bank of Japan disappointed markets with a modest addition to its monetary stimulus last week, upping the pace of stock market purchases to ¥6tn a year.
Taro Aso, finance minister, sought to portray the stimulus as a joint effort with the BoJ, holding an unusual meeting with central bank governor Haruhiko Kuroda on Tuesday evening to discuss the details.
“We want to accelerate Abenomics in co-operation with the BoJ,” Mr Aso told reporters. Mr Kuroda sought to keep fiscal and monetary policy separate, saying only that there is “synergy between the stimulus measures and the accommodative financial environment”.
Government bond yields rose sharply in Tokyo, with the 10-year yield close to positive territory for the first time since March.
Masamichi Adachi, senior economist at JPMorgan in Tokyo, said investors went into last Friday’s BoJ meeting expecting a large easing. They were disappointed when the BoJ did nothing but boost stock market purchases.
Mr Kuroda also announced a “comprehensive review” of monetary policy to take place at the central bank’s next meeting in September. “There are basically two views in the market about what that means,” said Mr Adachi.
Mr Adachi thinks the review could lead to more stimulus. He takes Mr Kuroda at his word: the BoJ governor insists that the review is about how to reach 2 per cent inflation as fast as possible.
But other investors think the review means the BoJ will admit defeat and accept it will take longer for inflation to get to target. “Many Japanese bond investors think the comprehensive review means the BoJ is now facing a serious limit and it will step back and normalise to some degree,” Mr Adachi said.
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