Japan’s Fiscal Easing Policy

$154.55 billion economic stimulus plan has been unveiled by Japan’s Liberal Democratic Party. The plan includes measures to create jobs, revive the real estate market, and ease corporate costs, largely via new fiscal policy. [br]

The fiscal easing, or tax cuts, will help create new jobs and will encourage parents and grandparents to give cash to their children and grandchildren to fun new homes and other large purchases. Also included are loan guarantees for small companies.

$154.55 billion economic stimulus plan has been unveiled by Japan’s Liberal Democratic Party. The plan includes measures to create jobs, revive the real estate market, and ease corporate costs, largely via new fiscal policy. [br]

The fiscal easing, or tax cuts, will help create new jobs and will encourage parents and grandparents to give cash to their children and grandchildren to fun new homes and other large purchases. Also included are loan guarantees for small companies.

This emergency small-business loan plan follows on similar measures taken last year in previous stimulus packages. It seeks to shield vulnerable, small companies from losses financial institutions have suffered. Their lack of available credit to give is a major impairment for domestic firms that need this cash flow for day-to-day operations.

This new fiscal policy will be implemented despite the nation’s massive fiscal deficit, but will be instrumental in rallying much-needed support for Prime Minister Taro Aso. General elections will be held later in 2009.

“It is true that Japan has a large fiscal shortfall, but the government will almost certainly hike VAT once the country is out of its economic troubles,” commented EconomyWatch correspondent Charles Cole. “Surely this will help pay back tax losses incurred now and in the previous stimulus packages.” [br]

“Our economists now believe that there may be some near- term upside risk to fiscal year 2009 growth forecasts,” commented Goldman Sachs chief equity strategist Kathy Matsui. “We believe the government is finally committed to preventing the market from breaking new lows in order to protect the financial system.”

The new package is expected to generate a 2% rise in GDP and 1.4 to two million jobs. This new stimulus package is Japan’s fourth in less than eight months, but is sorely needed with its massive export-dependent economy in the doldrums.

Both domestic and foreign demand collapsed in March despite Japan posting a trade surplus in February. Major auto and electronics manufacturers have slashed production, sending shockwaves through the domestic market. The result is residents not spending, as fears of job losses loom.

The economic situating in Japan is so bad that annualized GDP figures for the first quarter are equivalent to a drop of 12.1%.