Japan's patchy record at stimulating growth Back in the spring of 2009, in the wake of the Lehman crisis, Japan's then prime minister Taro Aso launched what he called a "three-stage rocket" of economic countermeasures to revive the ailing Japanese economy with Y15.4tn of additional government spending. Four years and four prime ministers later Japan is in recession, the government's gross debt has ballooned to 220 per cent of GDP and the new prime minister, Shinzo Abe, is again calling for a "rocket-start" to the economy with Y10tn in fresh government spending. Mr Abe's plan to boost the economy has lifted business sentiment and energised the stock market. But the Japanese government, which has eked out about Y60tn of funds through supplementary budgets since 1998, has a patchy track record when it comes to programmes aimed at stimulating the economy. While past stimulus programmes have helped the Japanese economy to bump along through financial crises, including the bursting of the dotcom bubble in 2000 and the Lehman shock in 2008, they have done little to address Japan's longer-term problem of persistently low growth. "What Japan needs is longer-term policies to lift its potential growth rate," says Hiroshi Shiraishi, economist at BNP Paribas in Tokyo. But analysts believe the latest stimulus package, which Mr Abe is expected to unveil on Friday, is unlikely to fare any better than previous programmes on that count. For one thing, the main stimulus will come from public works spending. While the supplementary budget earmarks Y10tn in new funds, much of this is money that was already going to be spent, and the real additional spending is just the Y5tn or so that will be raised through additional bond issuance and go towards public works, says Takahiro Sekido, strategist at Bank of Tokyo Mitsubishi UFJ. Since the previous government had cut back heavily on public works spending, "this is the part that will lift the economy," he says. However, the problem with infrastructure spending is that while it provides a short-term boost, once it runs its course the impact disappears. What is more, such spending often leaves expensive white elephants in its wake. A focus on public works also risks delaying the structural reforms needed for long-term, sustainable growth. Mr Shiraishi says: "By stimulating public works, labour is locked into less productive sectors, such as construction, rather than being shifted to areas where there is a shortage of labour, such as healthcare." The aim of Mr Abe's stimulus package is not to reflate the economy but to get the economy moving as fast as possible so that he can maintain public support for his Liberal Democratic party ahead of Upper House elections in July, says Martin Schulz, senior economist at Fujitsu Research Institute. "Mr Abe needs to have economic results by this spring . . . which is why his focus is on infrastructure investment, which produces jobs immediately and brings about economic results immediately," he says. Analysts believe that some elements of the latest stimulus programme point in the right direction, such as tax breaks to encourage companies to invest in Japan and to spur a shift in Japan's household wealth from the elderly to younger generations. "Corporations are sitting on cash and the elderly are not spending, so this is a step in the right direction," says Mr Shiraishi. But whether such tax breaks will provide enough incentive for companies, which face shrinking markets in Japan to invest at home and pensioners who are worried about the sustainability of their pension, to part with their wealth, is questionable, he says. "I don't think we can expect a huge impact," Mr Shiraishi says. Mr Abe's stimulus package also fails to address the problem of the numerous unprofitable and uncompetitive companies that weigh on Japan's economic growth but have been kept afloat by loan guarantees provided by previous stimulus packages. Mr Schulz says: "The biggest job of Japan's government almost over the past 20 years was trying to keep the economy somehow afloat." To do so, the government provided credit guarantees which have helped unprofitable companies to stay in business, he adds. In most countries, companies that are unprofitable for three to five years are usually considered bankrupt, but in Japan 70 per cent of companies are not paying taxes because they are not making profits, Mr Schulz points out. "This is not effective in terms of a growth strategy," he says. What Japan needs are fresh investment ideas and a drive to seize investment opportunities in growing markets, such as the healthcare and energy sectors at home and in regions such as Asia. "Unfortunately, the LDP's track record on both issues is not very strong," Mr Schulz adds.