Fiscal seppuku?

4 August 2008 By Martin Hutchinson

The prime minister s call for a stimulus package carries ominous echoes of Japan s 1990s public spending. Rising imported commodity costs have pushed the country towards recession, so reducing them would help. That calls for higher interest rates, not fiscal stimulus.

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Japanese prime minister Yasuo Fukuda said on August 4 that he has appointed his new economics minister, Kaoru Yosano, to work on a fiscal stimulus package to prevent the Japanese economy falling into recession. His Liberal Democratic Party faces an election by September 2009.

Japan's gross domestic product rose 1.3% in the year to March 2008. According to a survey by the Economist, it is expected to grow 1.4% in 2008 and 1.3% in 2009. Industrial production fell 2% in June; it was up 0.2% in the year to June, but fell in both the first and second quarters of 2008. Consumer price inflation was 2.0% in the year to June. Japan's current account surplus was 4.1% of GDP in the year to June, and its budget deficit is expected to be 2.7% of GDP in 2008.

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