To head off the country’s biggest slowdown in two decades, Japan has approved a stimulus package of more than 2 trillion yen. The staggering number will buy the government and the Bank of Japan some much-needed breathing room. This is our translation of the announcement, as it’s been translated into English:
Japanese Prime Minister Shinzo Abe and Bank of Japan Governor Haruhiko Kuroda announced today that they have decided to use all the available excess of the government reserves to buy bonds in order to pump funds directly into the economy.
At 2.03 trillion yen, the government’s current fiscal balance isn’t expected to be balanced until fiscal year 2047. The government’s new stimulus package was formed out of an 11 trillion yen national tax hike, added to 2 trillion yen in savings, and roughly 700 billion yen in borrowing from the central bank. Abe hopes that by buying government bonds, he and the central bank will be able to stimulate an economy that is forecast to grow 1.1 percent this year.
The sales tax rise in April has already increased the burden on Japan’s families, putting a squeeze on household budgets. Without the stimulus package, the government was estimating the economy would slow this year by 0.9 percent.
The extra cash should help sustain economic growth and encourage foreign investments in Japan. The Bank of Japan will now purchase 10 trillion yen worth of government bonds annually until the second half of the fiscal year, and the government will subsequently start off with a 3 trillion yen funding plan, before jumping up to 10 trillion.
The first hurdle will be selling out the government’s tax hike money. Unlike Belgium or France, which increased their taxes in the wake of Brexit, the Bank of Japan does not offer a QE program. The Japanese also have traditionally opposed sales tax increases, but seems to be more open to the idea of a higher tax than previous governments.
Read the original article on Financial Times. Copyright 2018. Follow Financial Times on Twitter.