Japan to spend $116 bn to recover from recession

11 Jan 2013

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Shinzo AbeThe Japanese government will spend  ¥10.3 trillion ($116 billion) to recover from a recession in prime minister Shinzo Abe's first major policy initiative to end deflation and boost growth.

Around ¥3.8 trillion would be for disaster prevention and reconstruction, with ¥3.1 trillion meant to deliver a stimulus to private investment and other measures, according to a statement released today by the Cabinet Office. Extra spending would up gross domestic product by about 2 percentage points and create around 600,000 jobs, according to the government.

Analysts believe a pick-up in China's inflation reported today may help the newly elected Abe to lead Japan out of its third recession in five years. The stimulus might add to concerns that the government was wavering in its commitment to fiscal reform adding to the risk that a public debt more than twice the size of the economy might set off a surge in bond yields.

Analysts believe the economy may get more shots in arm from Abe and turn a blind eye to fiscal discipline until the elections. They add, there was a risk that long-term bond yields would be up unless the government took measures to restore fiscal health.

Abe is expected to gain support for his Liberal Democratic Party with a fiscal boost ahead of the upper house elections in July after the yen fell to under 89 per dollar today.

Meanwhile, the US trade deficit probably contracted to $41.3 billion in November, according to the median of 68 estimates ahead of a Commerce Department report. The government's monthly budget report, also scheduled for release today, is expected to show a $1 billion deficit for December following an $86 billion shortfall the previous month.

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