Japan Plans to Spend 2 Trillion Yen on Stimulus Plan

By Keiko Ujikane and Toru Fujioka

Aug. 29 (Bloomberg) -- Japanese Prime Minister Yasuo Fukuda, facing elections within a year, plans to spend about 2 trillion yen ($18 billion) to revive the world's second-largest economy.

The government will also provide 9 trillion in loan guarantees and aid for small and mid-sized companies that will take the total package to about 11.7 trillion yen, it said in a statement in Tokyo today.

``Most of this is just padding from lending-related measures,'' Richard Jerram, chief Japan economist at Macquarie Securities Ltd. in Tokyo, said before details of the plan were released. ``It looks as though the genuine spending-related components will be 1 trillion to 2 trillion yen spread over a year, which is insignificant.''

Fukuda's popularity has halved since he became leader of the ruling Liberal Democratic Party last September, amid disputes with the opposition controlled Upper House and after he re- imposed a tax on gasoline in May.

The economy shrank an annualized 2.4 percent last quarter, the most since 2001, and the fastest inflation in a decade is eroding the spending power of consumers amid sluggish wage growth.

Last month Japan's 250,000 commercial fishermen staged the biggest strike of its kind demanding the government ease the cost of running their boats.

``This is 100 percent for Fukuda's popularity,'' said Takehiro Sato, chief Japan economist at Morgan Stanley in Tokyo.

Consumer prices excluding fresh food climbed 2.4 percent in July from a year earlier, and household spending fell 0.5 percent, a fifth monthly decline, reports showed today.

To contact the reporters on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net