Abe announces stimulus package to drive growth

THE Japanese government approved emergency stimulus spending of more than $94.5 billion on Friday, part of an aggressive push by the Prime Minister, Shinzo Abe, to kick-start growth in Japan's long-moribund economy.

Mr Abe also reiterated pressure on Japan's central bank to make a firmer commitment to stopping deflation by pumping more money into the economy - a measure he says is crucial to getting businesses to invest and consumers to spend.

"We will put an end to this shrinking, and aim to build a stronger economy where earnings and incomes can grow," Mr Abe told a news conference. "For that, the government must first take the initiative to create demand, and boost the entire economy."

Under the plan, the Japanese government will spend about ¥10.3 trillion (about $109.6 billion) on public works and disaster mitigation projects, subsidies for companies that invest in new technology and financial aid to small businesses.

"Abe will probably give the economy more shots in the arm and turn a blind eye to fiscal discipline until the elections," said a senior economist at Sumitomo Mitsui Asset Management, Hiroaki Muto.

The government will seek to raise real economic growth by 2 percentage points and add 600,000 jobs to the economy, Mr Abe said. The measures amount to one of the largest spending plans in Japan's history.

By simply talking about stimulus measures, Mr Abe, who took office late last month, has already driven down the value of the yen, much to the relief of Japanese exporters whose competitiveness benefits from a weaker currency. But the government's promises to spend its way out of economic stagnation also raise concerns over Japan's public debt, which has mushroomed to twice the size of its economy and is the largest in the industrialised world.

At the root of Japan's debt woes was a similar attempt in the 1990s by Mr Abe's Liberal Democratic Party to stimulate growth through government spending on extensive public works projects.

Mr Abe said spending this time around would be better focused to bring about growth through investment in innovation.

He said the government would also invest in measures that would help mitigate the fall in Japan's population, by encouraging families to have more children.

"To grow in a sustainable way, we must help create a virtuous cycle where companies actively borrow and invest, and in so doing raise employment and incomes," Mr Abe said. "For that, it is extremely important that we adapt a growth strategy that gives everyone solid hope that the future of the Japanese economy lies in growth."

A rise in China's inflation reported on Friday highlighted a rebound in Asia's biggest economy.