Japan is planning to launch a fresh economic stimulus of about $53 billion, sources familiar with the matter told Reuters. Japan has announced that it will increase the sales tax from 5% to 8% in April, 2014. The fresh stimulus package is aimed at offsetting the effects of the tax hike. Sources said that the size of the package will be between 5.4 trillion and 5.6 trillion yen. An increase in sales tax will directly affect consumption. If the government doesn’t take a step to prevent that, it would create further troubles for the Japanese economy.
Sales tax hike necessary for Japan
Japanese ministers have reiterated that the stimulus must be greater than 5 trillion yen to offset the blow of the sales tax hike. Japan considers the tax hike a necessity as the country is trying to reduce its enormous debt burden that equals 214% of its GDP. The Bank of Japan is also considering options to boost the stimulus. Bank of Japan governor Haruhiko Kuroda reiterated Monday that the country was on track to reach its 2% inflation target in two years. Markets expect the BOJ to take fresh measures next year amid concerns that inflation and economic growth may lose some momentum.
Japan not to disclose the exact amount before Dec. 12
Prime minister Shinzo Abe’s hefty spending and the Bank of Japan’s monetary easing have pushed up Japanese stocks and lowered the value of the yen. As a result, Japan grew at the fastest pace among the G7 countries in the first half of 2013. But the growth rate slowed drastically during the July-September quarter. Though the inflation rate is at its highest point since 2008, it’s far below the BOJ target of 2%. Experts have been skeptical about Japan meeting its 2% inflation target within two years.
Sources told Reuters that the government will make a final decision on the package Thursday. But the exact amount will not be disclosed before December 12, when the Cabinet is scheduled to approve a supplementary budget. The Cabinet budget, including the stimulus package, is expected to be about 7 trillion yen.