Japan OKs $10.7B stimulus, aiming to boost growth

TOKYO (AP) — Japan unleashed yet another barrage of stimulus at its stagnant economy on Friday, as debate over how to revive growth heated up ahead of a general election widely expected to deal a severe blow to the ruling Democratic Party.

Fresh data for October showed an uptick in industrial output from the month before, the first increase in four months, but little else in the way of encouragement.

The opposition Liberal Democratic Party, which is pushing for more aggressive action to spur growth, is widely expected to make major gains in a Dec. 16 general election.

The latest stimulus package approved by the Japanese Cabinet, totaling 880.3 billion yen ($10.7 billion), is earmarked mainly for spending on social programs, employment creation and support for small and medium-size enterprises.

The economy shrank 3.5 percent in July-September, and many economists say they expect a further contraction in the current quarter, which would land Japan in its fifth recession in 15 years.

LDP leader Shinzo Abe contends much stronger action is needed to help pull the economy out of the doldrums and has urged that the central bank to move more aggressively to end deflation, which has hindered growth for much of the past two decades.

The economy contracted 0.9 percent in July-September, and many economists forecast a further shrinking in the current quarter.

Industrial output rose 1.8 percent in October from September, though it fell 4.3 percent from a year earlier. Consumer prices were flat at 0 percent, but that was an improvement over the previous month's minus 0.1 percent.

October brought no improvement in labor conditions, with unemployment unchanged at 4.2 percent and the ratio of jobs available falling to 80 per 100 jobseekers from 81 the month before.

Tensions over a territorial dispute with China have bit into exports that already were limping due to weak global growth and the prolonged strength of the Japanese yen against other currencies, which makes them relatively expensive in overseas markets.

Meanwhile, the consumer demand that is a major driver of growth has remained anemic: Retail sales fell 1.2 percent in October from a year earlier, the government reported Thursday. A slight improvement in seasonally adjusted terms was mainly due to rising prices for food and energy, thanks to a hike in electricity rates.

Weak spending on cars and consumer appliances suggests consumer sentiment is weakening due to worries over job prospects, Capital Economics said in a research note. It argued in favor of longer-term structural reforms to nurture growth, given Japan's massive government debt, which is more than twice the country's gross domestic product.

"Although this is an age-old tactic for winning votes, we think it won't do Japan any favors in the medium term," it said, adding that "growth is becoming increasingly reliant on government support. Further stimulus could reduce the private sector's ability to pick up the slack in the future."