Japan’s government on Tuesday unveiled a new stimulus package worth nearly $81 billion to keep the fragile recovery in the world’s second-biggest economy from veering off track.
Prime Minister Yukio Hatoyama and his Cabinet agreed to 7.2 billion yen ($80.6 billion) in new spending after days of negotiations with coalition partners. The announcement had been expected on Friday but was delayed by disagreements.
The package is Hatoyama’s first major policy deal since his Democratic Party swept into power this summer promising help for workers and families. Since then, the country’s economic turnaround has been under threat from intensifying deflation and a strong yen.
After enduring its worst recession since World War II, Japan’s economy grew for the second straight quarter in the July-September period, expanding at an annualized pace of 4.8 percent. It was the strongest growth in more than two years thanks to previous stimulus measures and improvement in global demand.
But with consumer prices falling for the eighth month in October, the government has grown increasingly concerned about prolonged deflation.
Declining prices, which plagued Japan during its “Lost Decade” in the 1990s, can hamper economic growth by depressing company profits, sparking wage cuts and causing consumers to postpone purchases. It also can increase debt burdens.
Compounding worries is the yen, which surged to a fresh 14-year high against the dollar recently.
The package includes measures to bolster employment, extend consumer incentives to buy eco-friendly products and provide support for small and medium-size firms hurt by the strong yen.
The measures will be financed by the second extra budget for this fiscal year through March 31. Finance Minister Hirohisa Fujii said he expects the Cabinet to approve the supplementary budget next week.