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Japanese PM Announces Massive Stimulus Plan

Disha Uppal 09/04/09April 9, 2009

Japan’s prime minister announced a record 15.4 trillion yen or 113 billion euro stimulus plan to revive the country’s weak economy on Thursday. As part of the new programme, to be officially unveiled on Friday, the government wants to create nearly two million new jobs over the next three years. Japan’s economy is facing its worst slump in decades, with exports falling to record lows. Unusually for Japan, the unemployment rate has risen to over 4 percent.

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Japan's export-driven economy needs to be reinvented says Prime Minister Taro Aso
Japan's export-driven economy needs to be reinvented says Prime Minister Taro AsoImage: AP

As he unveiled the details of the country’s biggest stimulus package ever, Premier Taro Aso asserted that Japan’s future was not gloomy and that the downturn could be reversed. With its new plan, the third of its kind since October last year, the government wants to boost domestic demand and create nearly two million jobs within three years.

Japan's investors and stock market reacted positively to the announcement on Thursday. The benchmark Nikkei rose by 3.7 percent -- to its highest level in three months.

But analysts are cautious and believe the spending will only help short-term growth. “But in the long-term, it could be negative because Japan’s fiscal deficit is one of the largest in the world. The package doesn’t sufficient talk about the supply side -- it doesn’t talk about improving productivity. I think Japan will continue to suffer from a fiscal deficit for quite some time,” said Masamichi Adachi a senior economist at Morgan Stanley Japan.

Special emphasis on environment-friendly technologies

The new package aims at investment in medical and nursing care. A special emphasis has been given to the expansion of environment-friendly technologies such as solar power, energy-saving vehicles, television and other electronic appliances.

“The government wanted to have some sort of rationale for the spending. Across the globe, people are paying attention to climate change. Such spending could be acceptable by people in general,” explained Adachi.

The export-driven Japanese economy has been hit especially hard because of the fall in the global demand for the country’s cars, machinery and high-tech goods. The financial crisis has sparked a debate about whether export-driven economies such as Japan and Germany should restructure their economic model.

Japan has to maintain strong position on global market

“It is important that Japanese exporters remain in a strong position in the global markets. But at the same time we need a more balanced growth between the external and domestic demand. If we restructure wisely then we can have sustainable growth,” Adachi explained.

Speaking with reporters in Tokyo, Premier Aso also said that Japan must reinvent its export-driven growth model because it wasn’t a realistic option.

The prime minister, who is battling a low popularity rate, has been under pressure from the opposition to call fresh elections. He has resisted so far and has called on opposition parties to cooperate in implementing the new package to tackle the downturn.