Japan pushes new stimulus plan

by Roland Buerk BBC News, Toyko

Japanese shoppers are spending less

Visit the small Megumi Seiki machine parts factory in an industrial part of Tokyo, and the impact of Japan's worst economic crisis since the end of the Second World War is very evident.

The workers are there, all four of them, in their overalls, but the machinery is idle.

With no orders, there is nothing to do.

They chat, they smoke an occasional cigarette, and they wait.

"Up to last year we really didn't have days like this," says the owner Akinori Iino.

"We used the machines everyday. Since the beginning of this year there have been days like this when we are not using machines at all, all day long."

The situation at Megumi Seiki is being repeated across Japan.

Falling production

Industrial production has been slashed as exports nearly halved in February compared with the same month the year before.

This is very serious money Martin Schultz, Senior Economist, Fujitsu Research Institute

The economy shrank by an annualised rate of 12.1% in the fourth quarter of 2008.

The numbers for the first quarter of this year are likely to be grim too, with the IMF predicting Japan's economy declining by 5.8% this year.

Small companies are suffering, and so are large ones. Sony and Toyota are among the major corporations going deeply into the red.

Japan's government is responding by opening the spigots on spending.

Stimulus plan

Earlier in the week the governing coalition said it would formally unveil a new stimulus plan, which is expected to total 15.4 trillion yen ($150b; £105bn).

Small factories are suffering in the downturn

That's on top of two earlier stimulus packages and record budget deficit for the 2009-2010 fiscal year.

"This is very serious money," said Martin Schulz, senior economist at Fujitsu Research Institute.

"The Japanese government is now taking about 5% of GDP in its hand to spend during the course of a year. This will have an impact.

"So far our forecast was for GDP shrinking by about 6% or more this year. The impact [of the current stimulus] will be about 2%. This will help a lot. We are going from freefall into severe recession, so this is positive."

Much of the new plan overlaps with a long-term policy for growth announced by Prime Minister Taro Aso on Thursday.

That includes boosting solar energy, electric cars and energy-efficient appliances.

The government is aiming to create an extra 1.4 million to 2 million jobs in the next three years.

Some of those jobs will be at nursing homes - care for the elderly is a growth industry in Japan with its ageing population.

High savings rate

One of the reasons Japan's government can spend in this way is that its people do not - Japan has a high rate of domestic savings.

Japanese Prime Minister Taro Aso wants a fresh stimulus package

"The debt of Japan's government is going into the vicinity of 200% of GDP," says Mr Schulz.

"This is unheard of, and it is triple the size of the UK's.

"[But] one of the difference is Japan's debt is only domestic.

"In the UK lots of public spending needs to be funded by foreign funds, by foreigners investing. In Japan this is all domestic. This money comes from old people and basically now comes into the healthcare of old people."

Job security

Back at the Megumi Seiki machine parts factory, the workers don't expect to lose their jobs.

The owner regards them as family and says he will not lay them off.

But they are not particularly hopeful either.

"It's a good thing the government is putting money in," said one.

"But rather than that I want my work back, when we were doing regular hours and some overtime. That's what I want to go back to."

"Because of fraud cases, when you hear about the politicians I don't feel they're doing anything for the people," said another. "It's not enough. I feel like they're interested in their own business, not ours."

Japan's ruling coalition aims to turn its proposals into a bill to enact the new stimulus plan which will be submitted to parliament by the end of the month.

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