Japan offers economic stimulus package – Financial Times

Financial Times, 29/08/2008

The Japanese government on Friday unveiled a Y11,500bn (US$105.8bn) economic stimulus package which includes an income tax cut, fuel subsidies and government loans to small and medium-sized companies.

The package, which includes Y1,800bn in new spending and nearly Y10,000bn in government loans and credit guarantees, comes as the Japanese economy in July suffered its biggest contraction in seven years and inflation topped 2 per cent for the first time in a decade,

The measures highlight the pressure facing Prime Minister Yasuo Fukuda amid growing public discontent over rising prices at a time when wages are stagnating and economic activity has been sluggish.

The stimulus package, however, was widely criticized as ineffective in countering the impact of the economic slump.

“It does look to me like the impact of this package will be relatively small. It’s a knee-jerk reaction to difficult economic times,” says Robert Feldman, chief economist at Morgan Stanley in Tokyo.

Not only is the actual spending small, the substance of the package is unlikely to address the fundamental problem of the Japanese economy, which is low productivity, he says.

“It will slow the deterioration of the economy just a little but it won’t lift growth,” says Akira Maekawa, economist at UBS in Tokyo.