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Analysis: Japan’s fiscal stimulus

The Japanese government has pledged to pump the equivalent of 2% of the country’s GDP into its slowing economy.

The cash injection would total more than ¥10 trillion (£66 billion) as Japan’s GDP is worth about ¥540 trillion.

The stimulus package, aiming to combat effects of the recession, would be the largest in Japan’s history and add to the ¥12 trillion already earmarked for this purpose.

Speaking at a press conference on March 31, Taro Aso, the prime minister, admitted the country is facing a crisis. “Japan is currently in a situation that can be called an economic crisis. For that reason, we will be formulating new measures to boost the economy,” he said.

However, one expert on the region is sceptical that this headline figure will actually filter down into Japan’s economy. Edward Lincoln, the director of the centre for Japan-US business and economic studies at New York University, says: “We don’t know how accurate the numbers are. The government has a tendency to make headline announcements that bear no relation to the actual figure, which tends to be a much smaller number. The government had a reputation for this in the 1990s.

“It is premature to see what the impact will be, and what is real and what is pretend stimulus.”

However, the timing of the announcement is interesting, Lincoln adds, and hints that the prime minister is serious in his intentions to revive the economy.

Lincoln says there were two supplementary budgets late last year and in January this year. “Typically there is a hiatus between April 1 and September where nothing is happening, but this year the prime minister announced as soon as the regular budget passed, ‘We need to do more.’ This indicates a sense of urgency on the part of the government, so perhaps the real stimulus will be a significant part of this headline figure,” he adds.

Whether it will be enough to resolve the worst economic situation since World War II is another question. Lincoln says that if the government stimulus package increases by two percentage points of GDP, it will not push the country back into positive economic growth. However, it could be enough to moderate the downturn and reduce the pain until the situation returns to normal some time next year, he adds.


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