Japan plans to inject 28tn yen into economy
Japan’s Prime Minister Shinzo Abe has announced that his government will introduce a 28tn yen package, equivalent to £200bn, to lift the flailing economy.
Japan has faced low prices and low wage growth over the last two decades. Consumer spending accounts for 60% of the economy, however many are holding back on their consumption due to uncertainty over their financial future.
The injection of funds was expected post-Brexit as Abe warned the UK leaving the EU would have a negative impact on Japan’s economy. The amount, however, far exceeds earlier estimates.
Tokyo’s shares have reacted to the news but economists are sceptical as to whether the funds will have any real impact.
Full details will not be released until next week but some media reports say almost half the funds will include spending by local and national governments. The spending could be invested in building new infrastructure projects, which won’t directly affect economic growth.
Abe has been engaging in a variety of policies, in a programme coined as Abenomics, to try and pull Japan out of this rut. His approach has been three pronged using fiscal, monetary and structural tools. He has expanded the money supply to combat deflation, increased government spending to stimulate demand and made structural reforms to make the economy more productive and competitive.
The Bank of Japan pushed interest rates below zero in January to try and encourage consumer spending. There is speculation that the interest rates could fall even further below zero at the monetary policy meeting this week.
Despite all these tactics the world’s third largest economy has been unable to get back on its feet. Economists say Japan’s problems are much bigger and complicated than the government is willing to acknowledge. They suggest the kind of reforms Abe needs to be enforcing should involve expanding the workforce by including more women and foreign workers.
Analyst at Accendo Markets Michael van dulken said: “Global central bank policy looks set to become even more accommodative, having already benefited equity markets (and bond prices) handsomely over the post-crisis years.”