The Japanese government plans to unveil today a new economic stimulus package including spending of at least $100 billion, the finance minister said.
The package, which adds to 12 trillion yen ($119 billion) in spending planned under previously announced stimulus measures, comes as Bank of Japan policymakers debate the need for additional steps to support the flagging economy at a two-day rate review ending tomorrow.
“The prime minister has instructed us to compile measures that would include real spending of more than 2 per cent of GDP as we take into account a fall in our economy, which is bigger than other leading nations, as well as the need for international cooperation,” Finance Minister Kaoru Yosano told reporters today.
Among the steps to be included are the creation of a safety net for non-permanent workers, measures to help corporate financing and increased spending in solar power systems, he said.
Hit by plunging global demand and weak consumption at home, Japan's export-reliant economy shrank 3.2 per cent in the fourth quarter, its fastest decline since the 1974 oil crisis and twice as fast as the US and euro zone economies.
Analysts expect Japan's economy to keep shrinking in the first half of the year -meaning a record five quarters of contraction.
With business confidence crumbling to a new low and many small firms struggling due to tight credit, the BOJ is holding a policy board meeting at which it may mull expanding the type of municipal bonds it accepts as collateral in its market operations, the Nikkei business daily reported.
Analysts say any such move could help regional banks - hard-pressed as a deepening recession pushes many small companies into bankruptcy - raise money more easily and boost lending to such customers.
The BOJ currently accepts only publicly placed municipal bonds as collateral but could expand that to include such bonds issued privately to financial institutions, the paper said without citing sources.
“Regional banks may not hold a lot of government bonds that they could use as collateral, but they do tend to hold a lot of municipal bonds,” said Hirokata Kusaba, senior economist at Mizuho Research Institute.
“This is a policy designed to improve liquidity at smaller banks and I am sure they would welcome it. It could be seen as a pre-emptive measure the BOJ is considering just in case credit markets start to tighten again around earnings season.”
In the bond markets, which were focused on the prospects of a global economic recovery, the benchmark 10-year government bond yield rose to a 4-½ month high.
Reuters