Japan economy: Is stimulus package a magic wand?

In the latest effort to prop up economy and spur growth, Japan’s cabinet on Tuesday approved a massive 28-trillion yen stimulus package, including cash to improve infrastructure and raise the birth rate in the ageing nation. Undoubtedly, Prime Minister Shinzo Abe has deployed many strategies to goad the economy to grow.
He somehow convinced the country’s central bank to pump cheap money into the market. He raised government spending, pouring cash into areas as varied as day care and defense. And he sanctioned a sharp fall in the value of the yen, which benefitted the exporters to a great deal.
No matter what he tried, the results failed to achieve what Abe promised three and half years back when he got the second term as the prime minister. Has Abenomics, the economic policies advocated by Shinzo Abe at the time of 2012 general elections, lost its charm? May or may not be.
The stimulus plan announced last week is the latest in a series in recent years designed to fire up the world’s number three economy. Abe is trying to revive the economy which has created millions of jobs but failed to achieve wage growth.
“We’ve put together a bold stimulus proposal that is an investment in the future,” Abe said on Tuesday of the stimulus program. It will allocate money to social programs and infrastructure, including the construction of a next-generation high-speed train that will use magnetic levitation, or maglev, technology to float above its tracks.
It includes 6.0 trillion yen in low-interest loans and just 7.5 trillion yen in fresh spending—about a quarter of the total—by the national and local governments over the next several years.
Almost 4.6 trillion yen is for spending in the current fiscal year ending March 2017.
About 3.5 trillion has been earmarked to be spent on social items like wage subsidies for people who leave work to care for children or aging relatives.
Tokyo will spend 6.2 trillion yen ($61 billion) on infrastructure to help double the number of tourists visiting the country bringing revenues. Japan is aiming to double the number of overseas visitors to 40 million by the time of the Tokyo Summer Olympics in 2020. It will speed up the construction of a magnetic levitation line and aid building projects overseas.
The impact on the transportation and tourism industry from the economic package will be huge. There’s a limit to how much the government can increase tourism in Tokyo, Osaka and regular tourist areas. It is imperative to team up with local governments and businesses and thinking flexibly about how to encourage tourism. It will be able to handle the increased demand.
The stimulus program marks the doubling down of Abe’s effort to enhance growth and defeat deflation, which has bugged Japan since the 1990s.
Although, Abenomics succeeded in bringing the yen down from record highs and made Japan’s exports more competitive, but that has not been enough to deliver consistent growth.
And so doubts are mounting over a more than three-year-old bid by Abe to spur growth as Japan’s social welfare costs inflate one of the world’s biggest national debts.
What is required to do is to spur more demand and increase productivity by pushing through deregulation, increasing the nation’s potential growth rate. Will the stimulus magic wand add sheen to the country’s dull economy? One has to wait and watch.