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Japan stimulus package swells to $120bn in Abenomics reboot

Tokyo bolsters infrastructure while bracing for Olympic hangover

Tokyo's Olympic Village under construction: The government is looking to shore up the economy for the period after the games. (Photo by Takaki Kashiwabara)

TOKYO -- The Japanese government approved 13.2 trillion yen ($121 billion) worth of public stimulus spending on Thursday, with the economy due for a total infusion of 26 trillion yen if private-sector and other outlays are factored in.

The sum is a step up from the amount originally expected to come from the government's budget -- more than 10 trillion yen. Investment in public works accounts for 6 trillion yen of the total, including natural disaster recovery and prevention projects.

More broadly, the package is meant to strengthen the economy against a possible cool-down period after the 2020 Tokyo Olympics and other risks such as the U.S.-China trade war.

Prime Minister Shinzo Abe made his case for the package in a policy meeting on Thursday morning, calling it a "powerful" set of measures suitable as the first stimulus of the new Imperial era that started this year.

"We should not miss this chance," Abe said. "Now is the time to accelerate Abenomics and seek to overcome the challenges facing us."

A key pillar of the package will be enhancing preparedness for natural disasters like the strong typhoon that hit in October. The government plans to beef up flood protections and remove roadside utility poles to make way for vehicles in emergencies. Some money will also go toward rebuilding Okinawa's Shuri Castle, a World Heritage site that burned down at the end of October.

Japanese Prime Minister Shinzo Abe speaks during a meeting of the economy and fiscal policy council in Tokyo on Dec. 5. (Photo by Uichiro Kasai)

The size of the spending plan and the speed at which it came together raised questions for some, given Japan's struggle to rein in its public debt.

"It's worrying to think that the debate moved along toward a predetermined 10 trillion yen figure, with not enough time to properly examine the content," said Takero Doi, a professor of economics at Keio University in Tokyo.

"I suspect that policies of questionable immediate necessity may have also been chosen for funding," Doi added.

Hiroshi Yoshikawa, a professor of economics at Rissho University in Tokyo, said that since the Abe government is proposing additional spending, "it should also present a new scenario for reaching its goal of a primary fiscal surplus" in fiscal 2025.

The private spending includes investment by companies that receive state subsidies, in projects such as embankment reinforcement, riverbed excavation and dam raising. Highways are also to be expanded to accommodate increased traffic as tourism booms.

Support for small and midsize business is also on the way. This will come in the form of subsidies to promote digital-driven productivity growth and boost incomes. The government will also offer assistance for the agriculture, forestry and fisheries sector to expand production capacity and offset the impact of a Japan-U.S. trade agreement scheduled to take effect in January.

Still another priority is to support workers from the "employment ice age" generation -- 40-somethings who were frozen out of job opportunities during the country's "lost decades." A number of midcareer positions will be offered in the government.

The package is filled with other plans such as ensuring all elementary and junior high school students have access to computers, promoting 5G mobile networks and establishing a fund for young researchers. Lunar exploration with the U.S. and supercomputer development are also on the list.

Toshihiro Nagahama, chief economist at Dai-ichi Life Research Institute, welcomed the support for small-business productivity and other measures to boost future growth.

But the immediate lift to the economy from the additional stimulus may prove limited beyond earlier rounds of spending to brace the economy against the October consumption tax hike, Nagahama said.

"If the intent was to underpin the economy, the direct support to households could have been more generous," he added.

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