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Japan Approves $60 Billion Stimulus Package

Japan's cabinet approved a measure Friday that will pump more than $60 billion(US) into the island-nation's struggling economy. The goal of the stimulus, which is awaiting approval from the nation's parliament, is to boost economic growth, create jobs, and to spark a pickup in consumer spending.

Japan's economy is mired in a recession caused by deflation and a strong currency; prices continue to fall, but consumers are holding off on spending, hoping they will fall even lower. According to analysts' the nation's main problem is that the yen has reached a 15-year high, which has driven up the price of exports.

The Bank of Japan earlier this week set interest rates at just above zero. The new stimulus plan, according to the nation's Nikkei newspaper, could potentially boost Japan's GDP growth by as much as .6 percent, and help to prevent more job losses.

In order to fund the stimulus package, an extra budget will be required, which is expected to be submitted to parliament for debate sometime in October. Another stimulus package announced in September was aimed at creating around 200,000 jobs and reversing the GDP trend into positive territory. But opponents criticized the package for not going far enough.

At the forefront of Japan's economic troubles is the strong yen, which has gained close to 50 percent in value against the US dollar since the middle of 2007. Economists report that Japan has spent the last twenty years mired in what is referred to as a “liquidity trap”, suffering from falling prices and interest rates stuck close to zero, but savings remaining stubbornly elevated.

A significant portion of the yen's recent strength has actually been caused by the US dollar's relative weakness. The US has also slashed interest rates almost to zero and that economy faces the very real risk of sinking into a liquidity trap much like Japan currently faces.

Despite the supplementary budget's inclusion of additional spending measures, officials say that Japan will need to cut its budget deficit sometime in the medium term. Japanese government debt has ballooned to around two times the size of its economy through the last twenty years of stifled economic growth.