Japan's Cabinet Approves $54 Billion Spending Package To Ease Recession

December 20, 2008 8:55 a.m. EST

Tokyo, Japan (AHN) - Japan's cabinet has approved around 88.5 trillion yen ($990.9 billion) package of spending for the next fiscal year, which is 6.6 percent higher from the previous budget, to curb the slowdown in the country's recession.

The world's second-largest economy is expected to increase spending to 51.7 trillion yen ($578.9 billion) in the year from April 2009, following reports that the country's tax revenue are likely to drop by 13.9 percent to 46.1 trillion yen ($516.2 billion).

Today's aid package is the second additional budget approved by MPs, which is aimed to help finance tax cuts for homeowners, loans to small businesses and aid laid-off workers.

On Friday, the Bank of Japan slashed its benchmark interest rate to 0.1 percent to support small and medium-sized businesses amid deepening recession.

Japan's central bank is also expected to buy corporate debt, providing liquidity to capital markets as the cash-strapped companies struggle to raise funds to survive the global slowdown.

The central bank cut the interest rate percentage from 0.3 percent, a step taken by the government in a split decision of 7-1 vote which gained support from BOJ Governor Masaaki Shirakawa.

The country's economy depends on revenue from exports, which the central bank expects to weaken against the backdrop of the slowdown in overseas economies and the appreciation of the yen.

Japan expects the global growth rate to remain sluggish over the next few quarters as the U.S. economy is likely to remain low on negative feedback loop operating between financial markets and the real economy.

The bank said it would raise its monthly government bond purchases from lenders, which is a step to add funds into the banking system, to 1.4 trillion yen ($15.6 billion) from 1.2 trillion yen.

The central bank also decided to raise purchase of commercial paper temporarily by as much as 20 trillion yen ($223 billion) of shares held by banks to increase their capital support.

The government is expecting zero growth in the year ending March 2010 as it is struggling to raise $114 billion to cover its spending plans.