Japan's Abe unleashes stimulus plan to spur growth

Japan's Cabinet approved 3.5 trillion yen (USD 29 billion) in fresh stimulus today for the ailing economy, pledging to get growth back on track and restore the country's precarious public finances.

Prime Minister Shinzo Abe is wrapping up his second year in office hard-pressed to salvage a recovery that fizzled into recession after a sales tax hike in April.

The stimulus plan endorsed by the Cabinet includes 600 billion yen (USD 5 billion) earmarked for stagnant regional economies. It also lays out Abe's vision for countering longer term trends such as Japan's surging public debt and a declining and ageing population.

"A strong economy is the wellspring of Japan's national strength," said a summary of the plan released by the government.

It pledged to restore vitality to local regions to enable young Japanese "to have dreams and hopes for the future." But the document also acknowledged the narrow policy options open to Japan's leaders given the country's massive public debt, which is twice the size of the economy.

The government is sticking to its pledge to balance its budget by 2020, despite a recent decision by Abe to defer a tax hike due for next year until April 2017.

Abe has sought to spur growth and end a long spell of deflation through aggressive monetary easing and increased public spending. He also promised to undertake bold steps to break through the "bedrock" of Japan's vested interests and bureaucracy, but has made little headway in areas such as labour and farm sector reforms.

After taking office for a third term following a snap election earlier this month, the prime minister faces growing pressure to show that his "Abenomics" strategy for nurturing growth through inflation can succeed.

The Democratic Party of Japan, the leading opposition party, issued a statement today expressing its disappointment with the stimulus plan, which it said relied on old pork barrel tactics that have failed in the past.

It said DPJ lawmakers would push for policies "investing in people," to help improve incomes and boost growth.

Japan's central bank is buying up to 80 trillion yen (USD 660 billion) in assets each month, mostly government bonds, to help spur inflation, but so far has not attained its target of 2 per cent price increases overall.

Data released yesterday showed inflation eased slightly in November as incomes and household spending dropped.