Japan to spend pounds 44bn forging passage out of doldrums: Robert Chote reports on a 16-point expansionary spending plan to stimulate the country's flagging economy with public works projects and tax cuts

WHILE the British government remains determined to bear down on public spending in the midst of recession, the Japanese cabinet has approved a package worth nearly Y11,000bn ( pounds 44bn) of spending on public works projects and tax cuts to boost its slowing economy.

The 16-item package is the largest in Japan's history and will fill the gap created when previously planned spending for this financial year was brought forward. The expansionary spending programme is accompanied by measures to boost falling land prices and volatile share prices. Japan is able to afford such a package because, unlike in Britain, the public sector spends less than it raises in revenue and so can afford to borrow more. In the year to next April, the British government is expected to have to borrow pounds 33bn to balance the books.

However, the package is equivalent to only about 2.2 per cent of Japan's national output. This is little more than the 1.8 per cent that the Organisation for Economic Co-operation and Development estimates Britain will have pumped into the economy this year in higher public spending and tax cuts. That figure excludes extra spending on unemployment and other benefits, an automatic result of recession.

Economists said the most significant element of the Japanese strategy was a sketchy proposal announced last week to set up a corporation that would rescue ailing banks from bad debts estimated at about pounds 260bn.

The unexpectedly substantial package was greeted enthusiastically by the Tokyo stock market. In the heaviest trading this year the Nikkei 225-share index rose 415.79 points to 17,970.79, briefly topping 18,000 for the first time since June. Japanese share prices have risen by a quarter in the past 10 days.

The programme's main features are more than Y3,000bn in additional spending on public works, Y1,500bn for the purchase of land for future public projects and Y2,820bn to buy shares using post office deposits.

Although growth in Japan's national output has slowed sharply, it has not suffered a British-style recession with the economy shrinking in successive quarters. However, industrial production has fallen continuously for almost a year. The downturn in the world economy and the strength of the yen has severely affected some of Japan's most famous corporate names.

Nissan, the car maker, predicted yesterday that its parent company would make its first loss this year since 1951. It also said it would cut 4,000 jobs over the next three years, marking a further erosion of the 'jobs for life' image of Japanese industry.

In consumer electronics, household names such as NEC, Toshiba and Sony have downgraded profits forecasts.

Economists believe evidence that the programme is boosting the economy is unlikely to appear until next year, and that there is a danger that the stock market could start to fall again. Shortly before the Nikkei began recovering in recent days it had fallen to its lowest in more than six years.

Japanese authorities may have to consider another reduction in interest rates from the current 3.25 per cent. Interest rates have almost halved since the middle of last year, but have had limited impact in stimulating growth.

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