TOKYO — The Japanese government approved emergency stimulus spending of more than $100 billion on Friday, part of an aggressive push by Prime Minister Shinzo Abe to kick-start growth in Japan’s long-moribund economy.
Mr. Abe also reiterated pressure on Japan’s central bank to make a firmer commitment to stopping deflation by pumping more money into the economy — a measure the prime minister says is crucial to getting businesses to invest and consumers to spend.
“We will put an end to this shrinking, and aim to build a stronger economy where earnings and incomes can grow,” Mr. Abe told a televised news conference. “For that, the government must first take the initiative to create demand, and boost the entire economy.”
Under the plan, the Japanese government will spend about ¥10.3 trillion, or about $116 billion, on public works and disaster mitigation projects, subsidies for companies that invest in new technology and financial aid to small businesses.
Through these measures the government will seek to raise real economic growth by 2 percentage points and add 600,000 jobs to the economy, Mr. Abe said. The package announced Friday amount to one of the largest spending plans in Japan’s history, he stressed.
By simply talking about stimulus measures, Mr. Abe, who took office late last month, has already driven down the value of the yen, much to the relief of Japanese exporters whose competitiveness benefits from a weaker currency. In response, Tokyo stocks have rallied in recent weeks.
But the government’s promises to spend its way out of economic stagnation also raise concerns over Japan’s public debt, which has already mushroomed to twice the size of its economy and is the largest in the industrialized world.
At the root of Japan’s debt woes was a similar attempt in the 1990s by Mr. Abe’s own Liberal Democratic Party to stimulate economic growth through government spending on extensive public works projects across the country, which did little to bring growth to the wider economy.
Mr. Abe said, however, that the spending this time around would be better focused to bring about growth through investment in innovation. He said the government would also invest in measures that would help mitigate the fall in Japan’s population, by encouraging families to have more children.
“To grow in a sustainable way, we must help create a virtuous cycle where companies actively borrow and invest, and in so doing raise employment and incomes,” Mr. Abe said.
“For that, it is extremely important that we adopt a growth strategy that gives everyone solid hope that the future of the Japanese economy lies in growth.”
To help Japan chart its economic growth, Mr. Abe has assembled two panels of chief executives and academics, including Hiroshi Mikitani, chief executive of a major e-commerce operator and a harsh critic of Japan’s old economic guard, and Heizo Takenaka, a former economy minister and outspoken academic known for his disdain of pork-barrel spending.
Meanwhile, a more aggressive monetary policy designed to beat deflation could fall into place when the Bank of Japan’s board meets on Jan. 20-21 for its monthly review.
Mr. Abe has leaned on Japan’s central bankers – who he has criticized for being too cautious – to commit to an inflation rate of at least 2 percent, which would help convince businesses that Japan will not arbitrarily reverse course on its easy-money policy. For over a decade, Japan’s rate of inflation has been flat or negative, reflecting sluggish personal incomes and corporate profits.
Some at the central bank, still wary of the tremendous asset bubble that loose monetary policy triggered in the late 1980s, have warned of the dangers of stoking inflation. The Bank of Japan governor, Masaaki Shirakawa, has also bristled at the idea of bankrolling public spending by buying up more government bonds.
But with its benchmark interest rate already near zero, the bank has few other options left than to buy up government bonds and other financial assets if it is to inject funds into the economy.
In an interview with the Nikkei business daily published Friday, Mr.
Abe said that he would seek in writing an agreement from the bank to pursue a 2 percent inflation target, though he said the agreement would not set a deadline. He also said the bank should consider policies that would maximize employment.
Mr. Abe said that he hoped to pick as Mr. Shirakawa’s successor someone who shared the government’s position on inflation and employment, according to the interview. The central bank governor’s term runs out in April.
Hajime Takada, chief economist at the Mizuho Research Institute, said in a note to clients Friday that there were still too many unknowns to assess the effectiveness of Mr. Abe’s economic push.
But by setting a clearly pro-business policy agenda, Mr. Abe has started to change the mindset of investors and corporations who had all but given up on growth – and for that, the new prime minister scores high points, Mr. Takada said.
