Japan's main stock market fell sharply a day after Prime Minister Naoto Kan unveiled new stimulus measures to boost the country's economy. His plan and the Bank of Japan's decision to ease monetary policy are drawing criticism.
The Nikkei index lost 3.6 percent Tuesday, and the yen neared 15-year highs, despite the Bank of Japan's monetary easing.
Prime Minister Naoto Kan rolled out his new economic stimulus measures Monday after increasing signs the economy was weakening. The problem is made worse by the yen's persistent strength against the dollar, which hurts Japan's big exporters by making their products more expensive overseas.
The prime minister's announcement came just hours after the Bank of Japan called an emergency meeting and took steps to increase credit available to lending institutions. The move is intended to help lower interest rates in the marketplace and ease the yen's strength.
Mr. Kan says his stimulus package and the BOJ decision formed two pillars in responding to the current financial situation.
His $11 billion plan extends several stimulus measures already in place. It maintains incentive programs to buy energy-saving home appliances. It also includes measures to help job seekers, including career counseling at universities and internship programs for new graduates. Kan also proposes establishing a committee to adopt new economic growth strategies, along with increased support for smaller businesses.
Many financial and political analysts say Mr. Kan's stimulus plan is too little too late. And they say the BOJ's move does little because the current economic climate discourages lending.
But political analyst Tsuneo Watanabe with the Tokyo Foundation says the prime minister alone cannot stop the yen's rise and turn the country's economic fortunes around.
He says Mr. Kan is using the measures to boost his political capital, not necessarily the country's economy.
"Economically what he can do is limited," Watanabe said. "I think it's more of a political question. How does he make his image as a strong leader that's good for the economy?"
Mr. Kan came to power less than three months ago, vowing to turn Japan's economy around, and to cut the massive public debt, which is now twice the size of the economy. But his Democratic Party of Japan lost crucial seats in the upper house in an election last month, after Mr. Kan proposed raising the consumption tax.
Since then he has struggled to address the economic problems, which have worsened because of the rising yen.
Mr. Kan now faces an uphill battle within his own party, with the DPJ leadership election next month.
"The only person who can persuade the frustrated people is Prime Minister Kan. Prime Minister Kan needs to explain what he is doing and what he expects," Watanabe states.
Mr. Kan plans to give final approval to the new stimulus measures September 10th - four days before the DPJ votes for its new leader.