Page last updated at 10:53 GMT, Friday, 29 August 2008 11:53 UK

Japan unveils economic boost plan

Japanese shoppers
The outlook remains weak for the Japanese economy

Japan has unveiled a stimulus package worth 11.7 trillion yen ($107bn; 59bn) to boost the country's economy.

The government hopes that the plan will help people cope with rising prices and stave off a recession.

The plan only includes 2 trillion yen of fresh government spending, with 9 trillion yen in loan guarantees and aid for small businesses.

The package is much smaller than the $167bn the US spent on tax rebates and other measures to revive its economy.

"This package is not a one-off," said economic and fiscal policy minister Kaoru Yosano.

"It is aimed at continuously supporting the Japanese economy as well as people's lives."

No tax cuts

The package also includes discounts on motorway tolls, assistance to farms and help for part-time workers to find better jobs.

The measures do not include the temporary income tax cuts that had been advocated by the New Komeito Party, a junior coalition party.

The government has been reluctant to inject a bigger amount of public money into the economy because of the country's fragile finances.

Spending on emergency stimulus packages in the 1990s, when the country was mired in recession, means that Japan's public debt is among the highest of industrialised nations.

Inflation up

Japan's economy is struggling with consumers facing high energy prices and the country's exporters suffering as the global economy slows.

The economy shrank between April to June. If GDP contracts between July and September then the country will be technically in a recession.

On Friday, data showed that industrial output rose by 0.9% in July, but economists said that the stronger-than-expected figure did not ease fears of a recession.

Other figures released on Friday showed Japan's unemployment rate fell from 4.1% to 4%, while core inflation rose to 2.4%.

Little optimism

The rise in Japan's industrial output, against forecasts of a 0.5% drop, surprised analysts.

"As far as July's data is concerned, the situation for industrial output doesn't look so bad, as it showed relatively firm shipments while the inventory ratio declined," said Hiroshi Shiraishi, an economist at Lehman Brothers.

"But for the outlook, while domestic demand is already weak, there is a strong possibility a slowdown in external demand will have a full impact later on. So we can't be optimistic."

The rise in the core consumer price index, which excludes fruit and vegetable prices but includes oil, was at the top end of analysts' expectations.

However, analysts said fears of an economic slowdown made it unlikely the Bank of Japan would raise rates.

"At first glance, CPI's rise above 2% may be seen as a factor to prompt the BOJ to raise rates soon, but as it has been saying, the impact of high oil prices will come off in the future," said Junko Nishioka, economist at RBS Securities Japan.

"It's the downside risks to the economy that will make the BOJ hold fire."

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