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Japan Unveils New Measures to Reverse Economic Slowdown

Japan took steps Monday to kick-start its cooling economy and stem the rising value of the yen.

Prime Minister Naoto Kan revealed only the basics of a new $11 billion government stimulus plan, but said it will target employment help for young job seekers, investment in green industries and aid for small businesses.

The Japanese economy grew just 0.1 percent last quarter, stunting hopes for an immediate recovery. That disappointing figure was accompanied by news that the Japanese economy – the world’s second largest since 1968 – had been surpassed by China.

Responding to increased pressure to act, the Bank of Japan (BOJ) voted Monday to keep its key interest rate at near-zero and boost the amount of low-interest loans to financial institutions. The measures were aimed at reining in the rising value of the yen.

The yen hit a 15-year high last week, posing a risk to Japan’s export-driven economy by making products of companies like Toyota and Sony more expensive abroad.

Analysis of Japanese Actions

Edwin Merner, President of the Tokyo-based Atlantis Investment Research, agreed with the actions by the government and the BOJ.

"There were no really big surprises, but a kind of confirmation that the Bank of Japan and the government are moving in the right direction -- maybe a little bit slowly, but better now than never," Merner said.

Frederic Neumann, Hong Kong-based economist with HSBC Holdings, wondered if the actions were too little, too late.

“It did offer the market a little bit in terms of supplying more funds into the market,” Neuman said. “But, whether this will really come to aid the rest of the economy or will have the desired effects on the forex (foreign exchange) markets, I have my doubts at this stage."

Japan’s domestic consumption has been hurt by a decline in prices and wages caused by a lack of spending or available credit. The government’s stimulus plan aims to help target rising unemployment, which remains above five percent.

"How to get people to spend money, how to get companies to hire more people, how to get the economy growing, these are the questions the government is asking themselves,” Merner said.

Prime Minister Kan, facing a challenge to his leadership, had promised to take 'bold measures' to reverse the economy’s flat performance. He said the cabinet would decide details of the new stimulus package on 10 September.