TOKYO, Apr 9 – Japan\’s ruling party Thursday approved a record stimulus spending plan of more than 150 billion dollars to rescue Asia\’s biggest economy as fresh data revealed an unexpected boost in manufacturing.
The 15.4 trillion yen injection – about three percent of economic output – would be part of a wider package worth over 56.8 trillion yen (570 billion dollars), when tax cuts, loan guarantees and other measures are included.
Prime Minister Taro Aso was this week expected to announce the stimulus plan, which includes money for solar power generation, payments for laid off non-permanent workers, and new spending on medical and nursing care.
The package will also see more than two trillion yen spent on kicking off a "low-carbon revolution" promoting solar power use, energy-saving vehicles and consumer electronics, a ruling party panel said.
It would also raise the tax-free amount of money parents can give to their children as gifts – a bid to tap the substantial savings of Japan\’s growing elderly population to boost residential property purchases.
Plummeting worldwide demand for Japanese cars, machinery and high-tech goods has put Japan on course for its worst economic slump since World War II.
But in a rare piece of good news, machinery orders – a leading indicator of corporate capital spending – unexpectedly rebounded 1.4 percent in February from a month earlier, ending a record four months of declines.
The government said core machinery orders are likely to have risen 4.1 percent in the three months to March from the previous quarter, a turnaround from a 16.7 percent plunge in the October-December period.
Investors welcomed the signs of improvement, sending the Nikkei stock index soaring 3.74 percent to the highest closing level in three months.
Analysts, however, cautioned against excessive optimism.
"We can\’t say the economy is breaking out of recession just yet," said Hiroshi Watanabe, economist at Daiwa Institute of Research. "It is still likely to keep wallowing at the deep bottom."
Japan\’s economy logged its worst performance in almost 35 years in the last quarter of 2008, shrinking at an annualised pace of 12.1 percent.
The ruling party said it was unrealistic to expect Japanese exports to be the sole driver of economic growth as they were in the past.
Analysts expect another sharp contraction in the first quarter of 2009, but they said the spending boost should provide some support in the future.
"There is not much the government can do directly about the crash in exports, but the imminent fiscal package appears set to provide credit to alleviate some of the pain of related firms, as well as giving a large stimulus to the domestic economy," said Macquarie Securities economist Richard Jerram.
The massive spending boost puts Japan back on familiar ground.
The Asian giant spent trillions of yen in the 1990s in an effort to resuscitate the economy after a burst asset bubble ushered in a decade of recession, economic stagnation and deflation.
The new package being prepared comes on top of stimulus measures approved by parliament since October that were worth a combined 75 trillion yen, of which actual fiscal spending was about 12 trillion yen.