Japan unveiled a package of “emergency measures” for its recession-mired economy on Friday, pledging Y4,000bn ($43.8bn) in spending and tax cuts and Y3,000bn in promised credit for companies as well as raising its limit for public fund injections for financial institutions to Y12,000bn.
The move came as the yen went briefly through the much-watched level of Y90 to the dollar to hit a 13-year-high against the US currency, fuelling concern about the prospects for exporters, the traditional engine of Japanese growth.
The benchmark Nikkei 225 shares average ended the day down 5.6 per cent.
“The market was shocked, and I was shocked to see the dollar fall below Y90 today,” Shoichi Nakagawa, finance minister, told a press conference amid strong speculation that Tokyo would move to hold down the yen.
However, asked if Tokyo might intervene in the currency markets, Mr Nakagawa said: “[Intervention] isn’t in my mind at all.”
Unveiling the government’s package of economic measures, Taro Aso, prime minister, said: “The economy is deteriorating in a manner that goes beyond our anticipation.”
His planned measures include Y1,000bn in tax cuts for recipients such as home owners and businesses making capital investments, and another Y1,000bn in grants to local governments for use mainly in job creation.
Mr Aso, who has seen his opinion poll ratings plunge in recent weeks, badly needs to be seen to be taking decisive action to support the economy.
But economists said the effect of the package would be limited.
“I don’t think it will stimulate the economy a lot, but it might help slow the pace of the decline to some extent,” said Akira Maekawa, senior economist at UBS in Tokyo.
The package comes ahead of the first independent trilateral meeting tomorrow between the leaders of Japan, South Korea and China in the Japanese port city of Fukuoka. They will discuss how to respond jointly to the financial crisis, among other issues of mutual concern.
●Y1,000bn to local authorities for spending, mainly on job creation
●Y1,000bn added to the government contingency fund in fiscal 2009
●Y1,000bn in tax cuts to be approved in the next Diet session
●Y1,000bn in planned spending on labour-related issues such as subsidies for employment insurance
●Raising the limit on possible injections of public funds into financial institutions from Y2,000bn to Y12,000bn
●Y3,000bn to companies via purchases of corporate paper and soft loans
By Mure Dickie in Fukuoka and Lindsay Whipp and Robin Harding in Tokyo
Published: December 12 2008 18:54 | Last updated: December 12 2008 18:54
Source: The Financial Times