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Thursday, November 12, 1998 Published at 16:24 GMT

Business: The Economy

Japan moves to avert financial disaster

Government looking to boost public spending

The Japanese Government has unveiled plans for the country's biggest ever stimulus package aimed at trying to haul the world's second largest economy out of one of its worst ever recessions.

Juliet Hindell reports
The plan involves slashing taxes and providing a huge boost to public spending.

A recovery in the Japanese economy is seen as vital to avert a global economic recession.

If Japan's financial system doesn't recover it could have dire repercussions for the UK, US and other leading economies which do large amounts of business with the country.

Just as importantly Japan's problems have created a crisis of confidence in the world's financial system which has brought many economies to the brink of disaster.

A collapse in consumer spending in Japan has already sent shockwaves reverberating around the Asian economy.

Prime Minister Keizo Obuchi has promised since August to act speedily to end Japan's worst recession ever.

But some financial experts doubt that the measures go far enough and the stimulus package failed to impress the Japanese market which closed down 2% on Thursday.

Spending its way out of trouble

The total economic package is worth ¥18 trillion ($148bn), making this the largest stimulus package Japan has ever seen.

Central to the plan is ¥10 trillion ($82bn) for new public works projects and ¥4 trillion ($33bn) in income tax cuts.

Corporate taxes will also be cut sharply.

Back on track

Japan's economy is expected to shrink this year and unemployment will rise beyond its already record levels but the LDP believes this package will put the economy back on track within two years.

The announcement of the details has been carefully timed.

[ image: Keizo Obuchi: could face tough questions]
Keizo Obuchi: could face tough questions
A strong Japanese economy is seen as essential if other countries in the region are also to recover.

How Japan plans to turn the economy around will be one of the main discussions at the Asia Pacific Economic Co-operation Forum taking place in Malaysia.

The Japanese Prime Minister will meet his Asian counterparts and President Clinton there and may face tough questioning on the economy.

One part of the plan has already met with widespread criticism in Japan.

Shopping vouchers

The government's most innovative idea is to give shopping coupons to 35 million citizens in the hope that it will spark a consumer boom.

[ image: Shoppers to be given spending vouchers]
Shoppers to be given spending vouchers
The elderly and families with young children will be given vouchers worth ¥700m ($5.8bn).

But economists say the coupons will not increase spending as households will simply use them to buy everyday items and save their own cash.

The scheme has sparked widespread criticism of the LDP, with many saying it proves that politicians have no idea how to revive the economy.

More details of the stimulus package will be announced on Monday.

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