Sunday, October 12, 2008

Japan proposes third economic stimulus package of the year

Japan Considers Stimulus Package, Financial Times
Japan Plans a Third Economic Stimulus Package, New York Times
Japan Pledges to Act as Nikkei falls 9.4%, Financial Times

Japan is preparing to launch an economic stimulus package in response to the financial crisis. The package is expected to include public works spending, low-cost housing loans and tax incentives for businesses. However, it does not include a cut in income taxes, a move which business leaders have advocated to stimulate spending by consumers. The package is not expected to lead to an economic recovery, but Japanese leaders hope it will prevent the economy from deteriorating further—or at least slow the deterioration down.

The stimulus package is the third one this year. Japans has also taken steps to limit the crisis’s impact by lifting a daily limit on share buybacks and the Bank of Japan pumped Y4,500bn into the money market. In addition, it is expected to approve a Y1,800bn supplementary budget within the next week to cover some of the administrative costs of the stimulus package.

Japan’s financial system is holding fairly steady, so far, and its economics minister does not yet think the Japanese banks are in need of a bailout. However, analysts have begun to worry that the financial crisis will undermine the Japanese economy. For example, Japan’s stock markets were down 24 percent last week, its worst ever weekly decline. It also saw its first financial institution, Yamato Life Insurance, declare itself bankrupt last Friday because the financial crisis caused a steep drop in its investment values. Bankruptcy rates rose 34 percent year-on-year in September, as well.

(1) Is Japan's economy likely to deteriorate further? What will the stimulus package likely accomplish?
(2) What other steps should Japan be taking to shore up its economy?

No comments: