Japan unveils $154bn stimulus plan

The Japanese government is to provide Y50,000bn in loan guarantees to government affiliated financial institutions to buy stocks in the market as part of a record stimulus plan that will cost the government Y15,400bn.

The size of the new package, which amounts to 3 per cent of GDP, highlights the government's intention to act aggressively to combat the debilitating impact of the global recession on the Japanese economy.

It will give “a large stimulus to the domestic economy”, said Richard Jerram, chief economist at Macquarie in Tokyo.

The package also includes a tax break on up to Y40m of “gift” money parents provide their children to buy a house.

Details of the new stimulus plan, which also includes measures to stimulate solar energy, encourage more lending to corporations and support the unemployed, will be unveiled on Friday.

Using fiscal policy aggressively “will damage the already poor fiscal position but tolerating extended deflation and recession would probably be worse for the path of government debt,” he said.

Takeo Kawamura, chief cabinet secretary told the Japanese media the government would likely have to issue construction bonds and deficit bonds of Y11,000bn to pay for the additional spending.