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Prime Minister Shinzo Abe announced $266 billion economic stimulus package on Wednesday to boost the struggling economy ahead of the policy meeting of the Bank of Japan.

Speaking at the press conference in Southern Japan, Prime Minister Abe said that they need to take steps to support domestic demand and put the economy on a firmer recovery path and he wants to use various measures to increase our escape velocity from deflation.

As soon as the stimulus package gets approved by the Cabinet on August 2, it will be part of the supplementary budget to be considered during the session of the parliament this September. The minister confirmed that 13 trillion yen will be allocated for the fiscal measures while other details of the package is expected to be disclosed this coming week.

Prior to the statement of Mr. Abe, Chief Cabinet Secretary Yoshihide Suga informed the press that ruling party and the its coalition group were still formulating all the details of the stimulus package.

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Hiroshi Miyazaki, senior economist at Mitsubishi UFJ Morgan Stanley Securities, explained that the amount is so large that the stimulus package is bound to have a big economic impact. It is impossible to spend this much money in one extra budget, so this may take place over the next few years.

Considered as the third largest economy, Japan managed to escape recession in the first quarter of the year, however, the labor market remains challenged until the second quarter. The recent Tankan survey of the BOJ showed a declining confidence over the nonmanufacturesr and the small companies from April to June.

Prime Minister Abe has headed the Abenomics since he took the office and has made relevant measures to boost inflation and the economy of Japan. None of the monetary and government measures have made a huge impact in the struggling economy of Japan. Adding to this, the population of Japan is not stable as majority are aging already, thus, companies lost the appetite to invest in housing and the consumer spending has been stagnant since the wages haven’t increased yet.

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Meanwhile, Bank of Japan was forecasted to have one of its consequential meeting as the strength of the yen persist.

"The BOJ is likely to ease policy, including increasing government debt purchases, so you could say the BOJ can absorb the new debt. It also makes it easier to show that the BOJ and the government are working together.” Miyazaki said.

Alex Wijaya of CMC Markets agreed and said that Abe administration continues to highlight the importance of co-operation with the Bank of Japan for a fiscal stimulus package.

In addition to the stimulus package, Mr. Abe pledged to improve wages for elder care workers and child care. Part of which are the needs-based scholarships for college students and the reduction of employment time.

 

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