Japan announces new economic stimulus package

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(Agencies)
Updated: 2008-12-12 22:30

TOKYO – Japanese Prime Minister Taro Aso on Friday announced a new 23 trillion yen stimulus package to shore up his country's economy, with measures to spur employment, encourage lending and inject capital into financial markets.

"The global downturn is said to be a recession on a scale that comes once in a century," Aso said.

Japan's Prime Minister Taro Aso makes a speech at a news conference in Tokyo December 12, 2008. Aso said on Friday he hoped the Bank of Japan would take measures to provide ample liquidity to financial markets. [Agencies]

The new package includes 10 trillion yen (US$111 billion) in tax breaks and public financing, and provides for up to 13 trillion yen (US$144 billion) to address the credit crunch, including capital injections for lenders and other financial institutions.

As the global financial picture continues to darken, governments are fast-tracking massive stimulus plans to shore up their economies. European Union leaders looked set to back a US$260 billion package Friday, after plans announced in recent weeks in India, China and the US.

Japan's prime minister is also under pressure to show he can lead the country back to fiscal health. Recent polls have shown support for his government has plummeted after gaffes by Aso and disappointment over his efforts to revive the economy.

Friday's announcement comes on the heels of 27 trillion yen in measures announced in October, which included expanded credits for small businesses and a cash payout to every household to spur spending.

"Since then the economy has worsened beyond our expectations," Aso said.

The total comes to at least 40 trillion yen, with some overlap in the two sets of financial measures.

Aso pointed to falling stocks and the surging yen, and said the newest package was needed to boost employment and stabilize Japan's economic system.

He said it would provide support including tax breaks for workers affected by the economic slowdown and home buyers, as well as funds for injection into markets and support for mid-sized businesses.

Tatsushi Shikano, senior economist with Mitsubishi UFJ Securities Co. in Tokyo, said the announcement must be followed by rapid action to be effective. He warned that some measures weren't likely to kick in until next year, postponing their effects to even later.

"The measures must be quickly carried out," he said. "The slowdown is rapidly worsening."

Before Aso's announcement on Friday, the yen surged to a 13-year high against the dollar. The US currency sank to 88.16 yen in afternoon trading in Tokyo, its lowest level since Aug. 2, 1995.

Japanese stocks plunged as the yen surged; the benchmark Nikkei 225 stock average slid 5.6 percent to 8,235.87.

A strong yen is especially painful for Japan's export-driven economy as it cuts into profits made abroad, even as slowing demand drags down sales.

Many of Japan's big-name companies have announced job cuts and slashed production in recent days.

Earlier this week, Sony Corp. said it will slash 4 percent of its global work force, cut spending and shut plants. The cuts include 8,000 of its 185,000 full-time workers, another 8,000 temporary jobs, and the closing of five or six plants.

Toyota has announced several production cutbacks in the last month in Japan and North America, as well as plans to cut several hundred contract workers.

The new stimulus plan was announced as Aso and leaders from China and South Korea were preparing for their first trilateral summit, to be held Saturday in the southern Japanese city of Fukuoka. The summit was expected to be dominated by financial issues.