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Shinzo Abe unveils 3.5 trillion Yen stimulus package

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Japanese Premier, Shinzo Abe, hot off the election victory which was viewed as an approval for his Abenomics to revive the Japanese economy, on Saturday unveiled a new stimulus package by his government.

Totaling 3.5 trillion Yen, or about $29 billion, the new package is aimed to help the various sectors of the country which includes a mix of subsidies, merchandise vouchers, small businesses and housing markets. The new package, the Government hopes, will help lift the Japanese GDP by as much as 0.7 percent. The Japanese government expects to fund the new round of stimulus spending by using unspent money from previous budgets and tax revenues which exceeded forecasts.

The move, which is largely targeted to regional economies, is being seen as an effort by Abe’s LDP party to gain consensus ahead of local elections in April 2015, which the ruling party needs to win in order to cement Abe’s grip on power. However, the move is expected to work in favor of not just the economy but also politically, considering that the new package aims to target the regions and sectors of the economy that Abenomics could not reach earlier.

A major part of the Japanese stimulus package would be aimed to populist schemes such as distributing coupons for buying merchandise, offering lower income households with fuel subsidies and funding of small businesses in an effort to revive the regional economies.

Another part of the stimulus package would be invested into disaster prevention and rebuilding regions of Japan that were previously affected by natural disasters.

A part of the stimulus package is aimed towards the housing markets, by means of lowering mortgage rates offered by government approved mortgage companies.

Earlier in the weak fundamentals from Japan saw consumer prices gain 2.4% in the year to November, modestly below the market expectations of a 2.5% rise. Core inflation however was still near the lows of 0.7% in November, down from 0.9% in October and well off the BoJ’s target inflation rate of 2%. However, the BoJ Governor, Kuroda, shrugged off the low readings and instead reiterated that Japan was on track to reach its inflation target, while shrugging off speculation of more easing from the Japanese Central Bank.

Industrial production over the month also rose lower than expected by 0.6%, well below the expectations of a rise to 0.8%. Japan has been battling a technical recession after its third quarter revised GDP fell -0.5%, after the previous quarter recorded a GDP contraction of -1.8%.

The Japanese Yen has weakened considerably during the year, falling as much as -14% for the year against the Greenback as the two country’s Central banks diverged on monetary policy. It was only in October when the Federal Reserve put an end to its QE purchases while the very next day the Bank of Japan announced a surprise expansion to their QQE program by 80 trillion Yen. This was preceded by the BoJ’s earlier attempts in February 2014 when the QQE program was expanded by 70 trillion Yen. Japanese premier Shinzo Abe, responding to the household budget squeeze agreed to postpone a planned sales tax hike by 18 months.

 

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