Stimulus Package

After the election of the House of Representatives, the first job for Prime Minister, Shinzo Abe, will be delivering a policy package for economic stimulus before this yearend. He announced it in his press conference the day after the election. Well, what was he doing for supporting declining economy? It would never be deregulation, but pouring government money into direct distribution, which does not fundamentally solve the problem. This is traditional way of Liberal Democratic Party. But Abe keeps on saying that there is no alternative.

In the election campaign, Abe reiterated that Abenomics had not been complete. “Some might have not felt rewarded by my economic policy. I will make good circulation of growth, wage and consumption,” told Abe in his speeches. Although the voters were half in doubt on his message, they voted for Abe, because no other alternative could found. After sweeping victory, Abe tried to show his seriousness for the implementation.

The Bank of Japan released its monthly report on short-term economic perspectives on Monday, which revealed little decline on corporations’ mind. Diffusion index of large-size manufacturers was +12, one point behind last month. While Abe was appealing his achievement of economic policy, business owners were calmly analyzing where Japanese economy was heading. Among small and mid-size businesses, retailers were psychologically negative for their future. Cheap yen and increasing export cost affected them negatively.

So what is on the prescription? Ministry of Finance started to consider additional budget for economic stimulus with amount of ¥3 trillion. MoF will make no effort without calculating income and outcome of national wallet. The substance will be distributing regional voucher to families, encouragement of purchasing houses to help both families and construction firms or subsidy for low-income families to purchase gasoline or kerosene. Those measures have been considered after gross domestic products in the third quarter showed steep decline in November.

In the annual reform of tax system, the government will propose three-year schedule for reducing the tax on corporations. On the other hand, it will pose heavier burden on consumers. In FY2015, higher tax rate will be applied to light beer. In this situation, it is hard for retailers to support further economic growth. Expectation for Abenomics is going to decline.