The new Japanese government announced an economic stimulus
package amounting to over ¥23 trillion, or 4.8% of GDP—one of the
largest ever packages of its kind. Yet the impact of the package is
rtain as more than half of it consists of, first, about
¥10 trillion in noncash measures such as easing the credit
environment for farmers and small and medium-sized
enterprises and, second, about ¥3 trillion to cover the state
pension deficit. The surplus carried over from the previous
budget because of difficulty in spending appropriations will
cover most of the new stimulus package, only 34% of which
relies on new bond issuance.
Recent hard data indicators are starting to support a
positive outlook. After declining in November last year,
manufacturing resumed its upward trend in December and
January. Auto sales continued to recover from the September
slump, which was driven by the expiration of the eco-car
subsidy program (Figure A1.16). Yet exports and investments
remain sluggish. Machinery orders, a leading indicator for
private investment, continued to recover, though still at a
much lower level than recorded before the global financial
crisis. Trade figures in February continue to show weak exports and
strong imports tipping the balance of trade in goods into deficit for the
eighth straight month—the longest run of such deficits since 1980.
All in all, expansionary policies, yen depreciation, and consumers’
advance purchases in anticipation of an increase in the consumption
tax from 5% to 8% scheduled for April 2014 should lift Japan’s domestic
demand. GDP growth is forecast to reach 1.2% in 2013 and 1.4% in 2014.
This growth is expected to be buoyed by resilient private consumption
accompanying public spending, with the sizable supplementary budget
adding to growth. The contribution of external demand is problematic.
Yen depreciation should help reverse export weakness in the coming
months. However, sluggish bilateral trade between Japan and the PRC continued through the first two months of 2013, even as tensions between the two sides have calmed down. The main risk to this outlook is insufficient labor supply to reconstruct areas hit by the 2011 tsunami, which has delayed reconstruction and hence held down public investment. Consumer price index inflation is forecast to pick up gradually this year and surpass 2% in 2014 because of the consumption tax increase planned in April 2014.
---- Sources: CEIC Data Company; Ministry of Economy, Trade and Industry. http://www.meti.go.jp/english/ (accessed 20 March 2013).
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