Japan Bets $81B on Plan to Avoid "Double-Dip Recession"

Today Japan decided on spending 7.2 trillion yen, or $81 billion, in stimulus. The funds will be used for loan guarantees and employment subsidies as well as to encourage purchases of energy-efficient goods.

However, according to Bloomberg coverage:

“Not everyone thinks the spending will help the economy. Morgan Stanley Asia Chairman Stephen Roach said Hatoyama needed to be ‘much more aggressive’ with his policies.

“‘It’s tiny,’ Roach said of the stimulus in an interview on Bloomberg Television yesterday. ‘This is an economy that went into its worst recession, the second lost decade, late last year and is barely coming out. The new government is not off to a good start in formulating policy strategy.'”

Regardless of the size, whether the government stimulus is a good idea remains debatable. Japan already has an excessive debt burden:

“[Japanese Prime Minister] Hatoyama’s ability to revive the economy has been limited by the nation’s swelling debt burden, which is already the largest in the industrialized world. He said the package was a reflection of the government’s will to spur growth without blowing out growing public debt.”

Much like in the US, it appears the biggest motivator behind throwing cash at the problem is political expediency:

“‘The package doesn’t help the economy much, the DPJ’s just afraid of being blamed if there’s a double-dip slump,” said Hiroshi Shiraishi, an economist at BNP Paribas in Tokyo. ‘I don’t think there’s any legitimate logic for implementing these measures except for political reasons.'”

More details are available from Bloomberg in its coverage of Japan’s new stimulus.

The Daily Reckoning