Prime minister Shinzo Abe has given orders for Japan’s first economic stimulus package since 2016 as his government frets about a global slowdown, the impact of higher consumption tax and the risk of a hangover from next year’s Tokyo Olympics.
Government officials vowed to produce an “agile” and “comprehensive” stimulus that will take advantage of ultra-low interest rates and borrow in order to finance public investment.
The planned stimulus highlights concerns about the health of the world economy as well as a global move towards looser fiscal policy, given sluggish private demand and the ability for governments to borrow at negative interest rates.
“To speed up our recovery [from natural disasters], deal with risks from abroad and accelerate productivity growth, we are formulating an economic plan along the lines of a 15-month budget,” said Yoshihide Suga, Japan’s chief cabinet secretary.
The plan would combine a supplementary budget for the remainder of the 2019 fiscal year, which runs to March 2020, with spending plans that would boost the economy all the way into 2021. The scale of the stimulus has not yet been decided.
The plan will include spending for reconstruction after typhoon Hagibis, which caused extensive destruction in eastern Japan last month, as well as investment to repair and expand flood defences, after the water breached dykes in several areas.
Mr Suga said there would also be spending to raise productivity in small businesses, agriculture and regional Japan, as well as investment to improve economic competitiveness beyond the Olympics. There are widespread fears of a slump late next year, once real estate investment timed for the games is complete.
“Putting the current low interest rates to good use, we want to deploy fiscal borrowing and investment proactively to invigorate investment for future growth,” Mr Suga said.
Similar programmes in the past have included funding to build a new magnetic levitation railway line from Tokyo to Osaka, due for completion by 2037.
Speaking after a cabinet meeting, finance minister Taro Aso said 50-year government bonds are now “a topic for consideration”. The finance ministry had previously rejected any possibility of taking advantage of low interest rates to borrow for longer than the current maximum of 40 years.
Mr Aso’s comments come days after Haruhiko Kuroda, governor of the Bank of Japan, said such bonds could be useful in preventing excessive downward pressure on long-term interest rates.
The BoJ has cut overnight interest rates to minus 0.1 per cent and purchased trillions of yen worth of government bonds but the flat yield curve now makes it hard for banks and insurers to turn a profit. The BoJ has also increasingly sought to maintain higher yields on the longest duration bonds.