Japan's Prime Minister To Release 10.3 Trillion Yen Stimulus

TOKYO, Japan - May 12, 2016 - PRLog -- The current Prime Minister of Japan, Shinzo Abe, has revealed that the government has decided to push 10.3 trillion Yen into the Japanese economy. This is the first major policy step the current government has taken to promote growth and push the Japanese economy out of recession.

In a statement released by the Cabinet Office, it was announced that of the total sum approximately 3.8 trillion Yen will be allotted to reconstruction and disaster prevention sectors and another 3.1 trillion Yen will be put into promoting private investment. The government is of the opinion that the money pushed into the economy will provide returns by accentuating the gross domestic product by about 2 percent. The government also stated that the fiscal stimulus would create close to 600,000 new jobs in Japan.

An increase in China's inflation was seen today while most other Asian economies rebound. It is believed that these factors will help Japan to emerge from its third recession. However, certain concerns were raised from various quarters of the financial world. Some pundits believe that increasing public debt to twice the size of economy might cause an undesirable increase in bond yields.

More recently, Japan's short-term bonds witnessed an upsurge while the country's long-term debts dwindled. This has caused the yield spread between the 30-year and 5-year securities to reach an all-time high since March 2010. The benchmark 10-year note also saw an increase. This has caused the yield to decline by one basis point. The yield is currently at 0.81 percent which is the lowest it has been since December 28.

While speaking to a group of journalists in Tokyo, the Prime Minister said that his government is wholly committed to economic revamping and this is supported by the proposed fiscal stimulus.

The Central Bank of Japan has offered solid support to Abe. Following the advice of the Prime Minister, Japan's central bank has decided to increase its inflation target to 2% from the current 1%. The bank has not yet put a timeline for achieving this target.

Robert Barkley, Executive Vice President of Portfolio Management at Orix Trading says, "The fiscal stimulus which the Japanese government is planning to release into the economy has the potential to change Japanese economy for good. People are already putting their bets on Japan. Since the government is already doing whatever it can to pull Japan out of recession, this fiscal stimulus will put the onus on the Central Bank of Japan. The BoJ may finally have to relent and begin easing."

According to the data released today. Japan witnessed a significant current account deficit in November. This data is enough to prove that a colossal task lies ahead for the Japanese Prime Minister and the current government.
To raise the proposed 13.1 trillion, Japan will have to sell close to 5 trillion Yen in Bonds. The government will have to raise additional budget in the current financial year to raise the entire amount. Additional bond insurance will come up to approximately 8 trillion Yen for the current financial year. This sum includes the previously announced 2.6 trillion Yen in bridge bonds, which were required to cover pension payments.

The Japanese government also said that the fiscal stimulus will take some time to show its positive effect and that the economists will be able to see its real impact in the next financial year that starts in April. However, the government refrained from giving any details on employment and job creation.

Economists are of the opinion that the fiscal stimulus proposed by Abe will cause the real annualized GDP to achieve a growth of 3.5% in the second quarter of the current fiscal year. The Brokerage has already increased its GDP prediction to 1.8 percent from a previous 1 percent in the current financial year. This enhanced forecast came as a result of the proposed stimulus as well as improving prospects of net exports. A decline in Yen has also been pivotal in causing this rise.

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