RegionsAsia PacificAbe plans €265bn boost for Japan’s economy

Abe plans €265bn boost for Japan’s economy

The package announced by the Japanese prime minister to boost growth is significantly larger than many were expecting.

Japan’s prime minister Shinzo Abe pledged that his government will deliver an economic stimulus package worth more than 28 trillion yen (JPY), equivalent to £200bn or €265bn, in his latest bid to revive growth in the world’s third-largest economy.

The move had been expected since the result of the UK’s referendum result on the European Union (EU) was announced on June 24, which saw voters support Brexit. However, earlier estimates suggested that the package would total nearer JPY 10 trillion.

Abe has admitted that the UK referendum result was likely to have a negative impact on Japan as the value of its currency has been driven upwards by investors who regard JPY as a safe haven.

Further details of the stimulus package will follow next week. In the meantime, the Bank of Japan (BoJ) holds its latest monetary policy meeting tomorrow, which could see interest rates cut further below zero. The BoJ followed the lead of the European Central Bank (ECB) back in February by introducing negative interest rates.

However, some analysts suggest that the contents of the package could prove disappointing. Media reports are predicting that half of the funding could be allocated to infrastructure projects by local and national governments and will provide only a modest fillip for the economy.

The financial markets have even speculated that the BoJ might even embark on a policy of so-called “helicopter money” by turning on the printing presses to finance tax cuts or higher public spending.

Although BoJ governor Haruhiko Kuroda has publicly ruled out this radical option, he is expected to announce new initiatives for increasing the supply of credit. Analysts have also pointed out that the BoJ introduced negative interest rates shortly after Kuroda said that the bank had no plans for any such policy.

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