Japan's Prime Minister Shinzo Abe and his government have announced a comprehensive stimulus package designed to shore up the economy. The total stimulus amounts to 26 trillion yen, according to a government statement. That's the equivalent of 215 billion euros. About half of this program is therefore made up of fiscal measures. The growth effect should be 1.4 percentage points.
The government has "put together a powerful package" to help overcome economic downside risks, Prime Minister Abe said at a meeting with cabinet members and members of the ruling party. It is the first stimulus package in Japan since August 2016.
Recently, the Japanese economy had cooled. The government justified the measures with low demand due to a tax increase and slow growth due to international trade disputes. In addition, the government expects the economy to slow down after the Tokyo Olympics in 2020.
VAT increase affects economy sensitive
In October, the government increased VAT from eight to ten percent. The reason was the rapid aging of the population. In Japan, private consumption expenditure, which is affected by VAT, accounts for around 60 percent of the country's economic output. Past increases had also hit the economy.
The stimulus package will now promote cashless payments and improve preparedness for natural disasters, the government said. She referred to the typhoon Hagibis in October, in which more than 90 people died. The supported measures also include reconstruction projects in regions affected by typhoons.
Similar to the European Central Bank (ECB), the Japanese central bank hardly has any leeway to support the economy given the already very loose monetary policy.