A yen to impress Japan's markets
The government plans to pump a record-breaking $196 billion into the economy. Will it be enough?
It may be the growing lines for free food, unemployment benefits, and discounted goods. It could be the constant complaints from the international community.
Whatever the reason, Japan's government unveiled an emergency stimulus package of record size yesterday. Coming on the eve of President Clinton's planned visit to Japan and the APEC meeting of Pacific Rim leaders in Malaysia, the package allows Japan's Prime Minister Keizo Obuchi to present his fellow leaders with evidence that Japan is acting aggressively at long last.
This latest plan, worth a stunning $196 billion, brings Japan's total spending on economic stimulus to $820 billion over the past eight years of stagnation.
It combines tax cuts, job-creation goals, and public spending designed to reverse economic decline and produce growth for the first time in two years.
The financial markets have reacted with tepid enthusiasm. Details remain vague, and some proposals seem little more than lip service to please opposition parties and economists.
But in adopting this stimulus plan the government has abandoned a long-held resistance to deficit spending. That step, along with the size and reach of the package, suggests that the government may be addressing this economy's problems with the urgency the US and others have long demanded.
"The government has implemented various stimulus packages, but they've failed to get a positive effect [because] they just resorted to spending on public works projects or tax cuts," says Taichi Sakaiya, head of Japan's Economic Planning Agency. "This time Obuchi and his Cabinet have decided that priority should be given to the economy even at the cost of the fiscal deficit."
This plan tries to go further than previous attempts. The government says it will lower the maximum rates of personal income and corporate tax, offer tax incentives on new housing, and create 1 million jobs.
The largest expenditure, some $66 billion, is dedicated to social infrastructure "with a future orientation," Mr. Sakaiya says. New transportation systems and development of a fiber-optic network are intended to help bring Japan into the information age.
The government hopes the plan will boost gross domestic product in the 1999 fiscal year to 0.3 percent growth.
If that happens, it won't come a minute too soon.
Bankruptcy and unemployment are at record levels, and the recession is finally starting to hit ordinary Japanese where they live. Magazines are chronicling the "Obuchi depression," sale signs are an increasingly common sight in Tokyo, and the number of homeless people is reportedly growing.
Some aspects of the plan seem like wishful thinking. One proposal involves "doubling" living space and parks in Japan. Planner Sakaiya admits that this is more form than substance. "We often use slogans in Japan," he says. "We say we'll double things, but it doesn't really mean to double things."
"This is going to be a great burden on taxpayers," admits Aritake Saiki, a spokesman for Obuchi, but the economy will be on a recovery track soon, and the burden will be minimized in a couple of years."
Some see this step, after long government resistance to deficit spending, as a positive sign.
"I do think they are starting to get it," says John Neuffer, a political analyst with Mitsui Marine Research Institute, referring to the belated sense of economic urgency.
Echoing the views of many foreign economists in Tokyo, Mr. Neuffer complains that more stimulus will make it easy for firms to avoid restructuring as the government tries to buy its way out of steeper unemployment and social discord.
"The downside," he says, "is that they are throwing money at lots of nonproductive investments and at companies that should go out of business."
The government's willingness to experiment with deficit financing has its limits. There was widespread disappointment that the package did not include a cut in the 5 percent consumption tax, a cut that economists and opposition parties say is the one thing that can restore the consumer spending that usually drives Japan's economy.