Japan introduces new stimulus, better 2Q growth

[September 10, 2010]  TOKYO (AP) -- Japan's economy isn't quite as weak as first thought, but it still needs help, the government said Friday as it unveiled details of a new $11 billion stimulus package.

Revised figures showed that gross domestic product expanded at an annualized rate of 1.5 percent in the April-June period, an improvement on the meager 0.4 percent reported in last month's preliminary report.

That report had indicated a barely growing economy and triggered widespread concern about the health of Japan's export-led recovery. The latest numbers, which put Japan on par with U.S. growth rates, are better but not great. Growth has fallen sharply since the 5 percent annualized rate recorded in the first quarter, and the future looks increasingly murky.

It was at least enough to buoy investor sentiment for the day. The Nikkei 225 stock average led regional gains, finishing up 140.78 points, or 1.6 percent, at 9,239.17. The improved growth figure stemmed from higher capital spending by companies. Corporate investment expanded 1.5 percent, compared with 0.5 percent growth in the Cabinet Office's preliminary figures.

The government, however, moved quickly to announce its latest plan to fend off worrying headwinds. Prime Minister Naoto Kan's Cabinet approved new stimulus measures worth 915 billion yen ($10.9 billion). The previously announced package aims to boost domestic consumption, fight deflation and tackle fallout from a strong yen, which hit a new 15-year high this week.

A strong yen is painful for the country's vital exporters because it reduces the value of repatriated profits and makes their products less competitive overseas. Toyota Motor Corp. has said that every 1-yen climb versus the dollar saps 30 billion yen ($358 million) from operating profit.

The fresh injection sets Japan apart from the rest of the developed world, which is winding down stimulus spending even amid signs of a cooling global economy. Since Kan revealed his plans last month, the package has been criticized by analysts as too little to make any meaningful impact.

The government says the package will lead to 200,000 new jobs and raise GDP by about 0.3 percent.

About half the money will go toward extending consumer subsidy programs for energy efficient homes and appliances. Other measures include job support programs for new graduates and steps to convince companies to keep jobs in Japan instead of moving factories overseas because of the strong yen.

"The direction, rather than the size of package, is extremely important," said Chief Cabinet Secretary Yoshito Sengoku, according to Kyodo news agency.

The government said it will "continue to monitor movements and adopt decisive measures when necessary. It also expressed hope that the central bank would work with the government to enact additional policy measures if needed.

Hamstrung by massive debt, the government will not issue new bonds to fund the emergency measures. It will instead tap into a reserve fund in this year's budget.

News of the package comes four days before a ruling party leadership election. Kan faces a fierce challenge from veteran lawmaker Ichiro Ozawa for presidency of the Democratic Party of Japan. Because the Democrats control a majority in the lower house, whoever wins Tuesday will almost certainly become prime minister.

Masayuki Kichikawa, chief economist at Bank of America Merrill Lynch in Tokyo, describes the latest stimulus as "limited" and expects more to come in the months ahead.

"Whether Kan or Ozawa wins, I think the government will need to devise some additional stimulus measures," he said.

[Associated Press; By TOMOKO A. HOSAKA]

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