Japanese economy gets new stimulus boost from Noda Government

The Government insisted new debt would be minimal as it plans to fund the stimulus with reserve funds.  The package included 200 billion Yen for regions that have been hit by the Tsunami and the subsequent nuclear disaster last year.

The Noda Government has also tried to look to the future with this package and announced 3.8 billion Yen investments in stem cell research as well as 41 billion Yen for renewable energy industries.  However, traditional sectors such as agriculture and fisheries would also receive support from this stimulus package.

In addition, 30 billion Yen would be invested to provide training to part-time workers.

Not surprisingly, 17 billion Yen for the Japanese coastguard at a time when Sino-Japanese relations are at an all time low over the ownership of some uninhabited islands in the East China Sea. 

This package is relatively small compared with the trillions of Yen that Tokyo has provided in support since the 2011 natural and nuclear disasters. However, most observers believe that the Government is trying to send a message to the opposition as well as the Bank of Japan. 

The Government is concerned that despite Japan outperforming its peers in the G7 economically in the first part of 2012 have since witnessed growth being stymied by the economic slow down in its export markets and the high value of Yen in exchange markets. 

Ministers are publicly urging the central bank to take steps and ease the monetary policy ahead of its meeting on 30 October especially since new data released on Friday showed that consumer price index has fallen 0.4 percent in the year to October.

Prime Minister Noda has also ordered his cabinet to produce a new stimulus package by next month but the government has very little room to maneuver.

Noda has a razor thin majority in the lower house of the Diet while his government is in minority in the upper house.  And the opposition parties have resisted Noda’s efforts to issue deficit-covering bonds until he announces an election date.  Unless the deadlock can be broken there is a real chance that the Japanese Treasury would run out of money in months.

Deflationary pressures and low growth have plagued the world’s third largest economy over the past two decades.  And most economists fear despite recent growth Japan could fall back into recession.