Japan releases details of 2014 stimulus package to offset sales tax rise

TOKYO - The Japanese Government has announced details of its ¥5.5 trillion (1.1% of GDP) stimulus package aimed at offsetting a drag on GDP growth from the scheduled 3% hike  in sales tax in April 2014 (from 5.0% to 8.0%). The stimulus package will consist of ¥1.4 trillion in infrastructure spending for the 2020 Tokyo Summer Olympic Games, ¥3.1 trillion in continued reconstruction spending following the March 2011 earthquake and tsunami, ¥0.6 trillion in subsidies to low income groups, and ¥0.3 trillion on job creation for young and female workers.

Importantly, the package is to be in financed in a way to avoid a further rise in public debt (which stands at over 230% of GDP), by tapping into revenue overruns from 2013 and using “special funds”. BVA Bank comments that, on balance, the stimulus package may come as a disappointment to those who were expecting bolder measures, as it lacks incentives to boost private investment and counts some spending that had been previously planned.
“While the forthcoming tax hike poses some risks to growth momentum – all the more so after a disappointing Q3 outturn (1.9% saar from 3.8% in Q2) – we believe it is an important and necessary step toward ensuring medium-term fiscal sustainability,” BBVA says. “In the meantime, we are awaiting implementation of much needed structural reforms (the “third arrow” of Abenomics). We expect GDP growth of 1.9% and 1.5% in 2013 and 2014, respectively.” www.bbvaresearch.com (ATI).