This money will be spent on improving infrastructure and businesses. In the long run, the government hopes that this will attract more and more investors.
The government is also hoping that this extra money will lead to the creation of approximately 600,000 new jobs and will boost the economy by 2%.
The world has been hit by slowed global demand. This, accompanied with reduced domestic consumption and exports, has affected the Japanese economy negatively. The Japanese economy faced constant contractions during the last two quarters and has now gone into recession.
Shinzo Abe, the Prime Minister of Japan, put blame on the previous government. Talking to a group of journalists, the Prime Minister said that Japan is today in a state of recession because the previous administration failed to boost the economy and create growth. He further said that to fight the current scenario, Japan must design a strategy that focuses on creating jobs and raise incomes. This is the only way to achieve sustainable growth in Japan.
The money that the Japanese government is releasing will be used to rebuild areas destroyed by the earthquake and tsunami of 2011 and support regional economies. It will also be used for promoting education and social security.
Yen has been declining
The Prime Minister of Japan has promised to take efficient measures to bring the Japanese economy back on track. One of the first things that the Japanese government plans to do is to make Yen fall in value.
Financial analysts are of the opinion that a weakened Yen will affect the exports positively. Once the Yen devalues, the price of Japanese products will also reduce for foreign buyers. This will lead to an increase in exports. Not just that, Japanese exporters will help pull the economy out of stagnation by putting their extra earnings back into the Japanese markets.
Fortunately, since last November, the Yen has already dropped by 12% against the Dollar. On Friday, it measured 88.97 per dollar.
In a recent statement, the government clarified that it has been keeping an eye on the Yen and will intervene if need be.
In other good news, Japanese share prices have gone up. This has led the Nikkei 225 to gain 1.4%.
Japan has been fighting deflation and stagnancy for many years now. All efforts of Japanese policy-makers to pull the economy out of deflation have failed in the past. The government hopes that the $116 billion stimulus being pushed into the Japanese economy will puncture deflation.
Michael Lane, Global Co-Head of the Investment Management Division at Shizuoka Capital Wealth Management says," Until now, whatever measures the government has taken, have been aimed at kick-starting the economy. At this point, the government needs to think beyond that."
Japan has been hit by low demand from its three key markets -- US, Eurozone and China. While demand from the US and the Eurozone has declined as these two zones are struggling with their own economies, a decline in demand from China has occurred due to Japan's territorial dispute with the China. These factors have directly affected Japan's exports and economy.
Japan's territorial dispute with China has hit the country especially harder. China is one of the biggest trading partners of Japan. It is also one of the fastest growing consumer markets. At this point, Japan cannot afford to offend China.
Lane says, "If Japan wants to take the road going towards economic growth, it must work on its relations with China. The economists have already predicted that the US and Eurozone will take a while to come out of the financial crisis that has hit them. In such a situation, China can play a pivotal role in improving Japan's exports and its economy."
Lane further added, "Other than working on its relations with China, Japan needs to make further efforts to improve its economy. If Japan wants to fight recession, it must attract the attention of global investors across the world. To achieve this, the country will have to start by spending on key areas like healthcare, retail, construction and agriculture."
Source: Michael Lane, Global Co-Head of the Investment Management Division at Shizuoka Capital Wealth Management
Contact: https://shizuokafinancial.com
