Japan getting aggressive in attempts to stimulate economy

Sources: Tokyo to launch record fiscal stimulus, Financial Times; Japan ready to take lead on aggressive stimulus plan, Financial Times

The Japanese Prime Minister Taro Aso ordered his government to prepare a record $99bn (Y10,000bn) fiscal stimulus package on Monday to help alleviate the global credit crisis. The Japanese government plans to release details of the package on Friday and submit actual legislation to the Diet by late April or early May.  Aso declared that the stimulus should include measures dealing with healthcare and medical services, subsidies to local governments, a new social safety net for non-regular workers, increased use of government financial institutions to ease the credit crunch, and solar energy.

Aso also offered the International Monetary Fund a $100bn line of credit at the G20 Summit, which was described by Dominique Strauss-Kahn, IMF Managing Director, as the “biggest loan in the history of mankind.”  Japan offered an additional $22bn in financial trade assistance for developing economies.

Japan’s economy has suffered along with the rest of the world during the financial crisis. The demand for Japanese exports has fallen in recent months—by almost half in February— and the country’s GDP fell by 3.3 percent quarter-on-quarter at the end of 2008. Additionally, Japan’s industrial output was down 9.4 percent month-on-month and job availability rates are at their lowest since 1974. Japan has been actively attempting to combat the crisis and, in addition to the newly proposed stimulus package, the Japanese government has passed stimulus measures costing a total of Y12,000bn, which amounts to 2 percent of Japan’s GDP.

Questions

(1) What are potential Japanese motivations for offering so much financial aid to the rest of the world?

(2) What impact will the Japanese stimulus measures have on the Japanese economy? On the world economy?