TOKYO—Prime Minister Shinzo Abe’s cabinet approved a $120 billion stimulus program, Japan’s largest in more than three years, citing the same global economic risks that have led central banks in the U.S. and Europe to cut interest rates.
Mr. Abe’s plan is also aimed at healing a self-inflicted wound on the Japanese economy: the October increase in the national sales tax to 10% from 8%. Retail sales fell 7.1% in October and car sales were particularly hard-hit, suggesting the tax may have led consumers to refrain from big-ticket purchases.
Japan’s exports have already been suffering this year, in part because of a slowdown in Chinese growth influenced by Beijing’s trade conflict with the U.S.
Tokyo’s new spending includes more than $50 billion to help the nation recover from a typhoon in October that killed about 100 people. Levees in many areas collapsed and led to widespread flooding, pointing to the need for stronger infrastructure.
Other spending will go to putting more digital devices in schools and funding reward points for shoppers who pay for purchases with credit cards, smartphone apps or other cashless methods. The government started the reward program in October to blunt the impact of the tax increase, and it has proved more popular than expected.
Mr. Abe’s government estimated new spending by central and local governments would boost Japan’s real gross domestic product by a cumulative 1.4% through the fiscal year ending in March 2022. The spending plan of ¥13.2 trillion ($120 billion), which requires parliamentary approval, is as much as the previous major stimulus package, which was released in August 2016 when a slowdown in developing economies caused turmoil in financial markets.
The stimulus offers “concentrated support for those who are trying to overcome the downside risks to the economy,” Mr. Abe said.
Concerns about the global economy led the Federal Reserve to cut interest rates three times this year.
Public spending is one of what Mr. Abe has called his three arrows of Abenomics, the growth strategy he started seven years ago. The other arrows are aggressive monetary easing and structural change. He has been relatively cautious about spending in the past three years, in a nod to fiscal hawks at the Ministry of Finance and in the business community.
Mr. Abe reluctantly acceded to the ministry’s push for higher sales taxes, but moved quickly to ease the effects. UBS predicts the economy will shrink at a nearly 3% annualized pace this quarter.
The stimulus should boost economic growth through the middle of 2020, said Hiroshi Ugai, an economist at J.P. Morgan in Tokyo. He said growth might then start slowing again, in part because wages and private consumption might be affected by weaker corporate earnings.
Write to Megumi Fujikawa at megumi.fujikawa@wsj.com
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2019-12-05 11:06:00Z
https://www.wsj.com/articles/japans-cabinet-approves-120-billion-stimulus-package-as-economic-clouds-gather-11575544001
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