Thursday, April 9, 2009

Japan Drafts $154.4 Billion Stimulus

“The world is at a turning point, where only countries that can turn adversity into opportunity will thrive,” said Prime Minister Aso. “Japan is at its most crucial crossroads in 100 years.”

Taro Aso unveiled the largest fiscal stimulus plan in its history on April 9, 2009. The plan called for $154 billion in new spending.

Several officials at western financial institutions denigrated the legislation.

While admitting that the plan would boost the Japanese economy in the short run, Masamichi Adachi, an economist at JPMorgan Securities Japan believed that “a substantial negative payback in 2010 looks unavoidable.”

“The stimulus will probably prevent Japan from falling apart in the short term, but it will leave a massive bill for the future,” said Hiromichi Shirakawa, the chief economist at Credit Suisse Group.

“The fiscal situation of the government is deteriorating faster than anyone imagined,” said Kirby Daley, an official at Newedge Group.

Instead of borrowing more money, Daley argued that Japan needed to address its debt problem. John Richards, an official at the Royal Bank of Scotland agreed with Daley.

“The burden of this debt is going to be felt and it’s going to be much worse than people thought,” said Richards. “It’s going to result in higher interest rates and slower growth than Japan can otherwise achieve.”

After the crisis ended, interest rates did not go up in Japan.

I imagine these economists would have preferred that Japan loan the $154 billion to the West so they could spend their way out of the recession.

Too bad.

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